Rystad Energy’s weekly steel and OCTG (oil country tubular
goods) note from two of their analysts, Alistair Ramsay and Marina Bozkurt.
Steel inventory levels in China have fallen in May, a positive
signal for demand gaining momentum. A combination of popular flat (plate, HRC,
CRC) and long products (rebar and rod) surveyed across 21 Chinese cities
slipped 2% to 12.45 million t.
The inventory declines are a positive signal for Chinese demand
as it follows another month of strong steel production growth in the country.
Steel production in May almost regained the levels seen in June 2021, near the
start of the government-induced cuts. Despite the rebound in activity,
commodity-grade steel prices remain under pressure as international supply-side
constraints continue to ease for basic steels. Hot-rolled coil (HRC) export
prices fell for a third consecutive week at an accelerating pace of 5.5% to
US$753/t fob. Prices of coils in Europe and bars out of Turkey have been
retreating even more rapidly in recent weeks.
A weak downstream outlook is also pushing prices lower. On a
seasonally adjusted basis, China’s manufacturing PMI for April showed
purchasing activity fell for a second consecutive month to a reading of just
43.5, reflecting a similar retreat in orders. Fortunately for steel producers,
business activity among their more critical construction sector clients is
merely slowing down – the official construction PMI for April was at 52.7
points – and with investment in infrastructure rising, market sentiment and prices
may well be about to turn across the world’s biggest steel market.
Oil country tubular goods
Export prices for OCTG from China have slightly softened over
the past month amid weak domestic demand due to COVID-19 lockdowns and Chinese
currency depreciation. However, Chinese OCTG exporters are hesitant to drop
their initial offers as the outlook for demand is supportive. Meanwhile,
business activity has been affected by logistics problems and shutdowns.
Current prices for J/K55 casing are at US$1200 - 1300/t fob, down US$30 - 50/t
over the past month.
China’s steel demand is expected to improve in June after
business activity returns to normal, providing support to steel product prices,
including OCTG. Rystad Energy expects OCTG market dynamics to improve from the
second half of this year after lockdowns are lifted. OCTG prices may remain
pretty high this year, driven by higher costs of raw materials due to
geopolitical tensions globally and government regulations to reduce carbon
emissions.
Japanese OCTG mills continue to increase prices, primarily
focusing on the value-added OCTG like 13Cr material. The price increase is
driven by tight global availability and strong demand, which will keep OCTG
prices at a high level further. Despite a possible price fluctuation for raw
materials, prices will unlikely cool down significantly as long as the Russia
Ukraine situation continues, putting strain on OCTG production.