Final Thoughts

Final Thoughts

Written by John Packard


I continue to watch what is happening in Europe, the Middle East and in Asia as it relates to the flow of steel-and steel-related commodities that normally come from Russia and the Ukraine.

One of my experienced trading contacts was wondering if the Russians will begin flooding China with cheap steel. (Wouldn’t that be special?) They already have a deal to ship metallurgical coal to China.

John Packard Summit 18Here is what that senior executive had to say to me over the weekend:

“On the premise we need to constantly re-calibrate. Russian miners and steel makers say that they are going to ship to other markets. Well, this could very well be the other side of the world. A potential flood of Russian ore, metallics and steel to Asia. At 3 million tons per month, only steel (not counting metallics) would lead to price erosion in the Far East, disruption of trade flows, etc.

“The most stable market in the world today is China, and Beijing wants it to stay that way.

“If the Russians can ship via vessel and rail and can get paid, any upward price movement in Europe and North America could end up having a downward trend in Asia. This will be bad news for Vietnam, Thailand, Indonesia, Philippines, Taiwan and South Korea. But worse for China.

“The world is a circular economy – what goes around comes around – this time in an eastern direction. Today the Turks are smiling, this war got them out of a hole.”

I also spoke to a long-time trading contact in China and asked him how the Chinese steel mills are reacting to the war in Ukraine. His comments:

“We are still in a holding pattern on steel exports from China as all depends on pricing, and freight is so volatile it makes or breaks the business. Oil prices are expected to reach USD $147-150/per barrel in the coming two weeks, and freight rates are moving every day.

“However, you know steel prices in the USA have spiraled from their peaks, whereas Asian levels are jumping as all the CIS steel from Far East ports is cancelled, including slabs, billets and HRC. Black Sea Ports cargoes are also cancelled, so everyone is trying to assess the next step.”

My Asian contact went on to say, “China is still importing Iranian steel and raw materials, so I doubt steel from Russia would be a problem…. Again, it depends on the price. You saw where China and Russia signed an MOU for 100 million MTs of coal from Russia right after the end of the Olympics. Since China and Russia can deal in RMB, there are no obstacles on the import side.

“All of these scenarios will become clearer in the next few weeks. We are hearing of Russian steel being imported into bonded areas and re-exported with China origin if prices make sense. China did this with Iranian and North Korean steel and raw materials years back when prices were really cheap from those origins. Whether this will work with Russia, will depend on prices. If the prices are low enough, of course, China will use the steel themselves to cut down on carbon emissions domestically.”

As the first trading executive pointed out, we will be constantly re-calibrating the impact on the flows of commodities used to make steel (iron ore, pig iron, energy prices and availability) as well as the flow of steel around the world.

As I mentioned in my last article, the U.S. is now positioned to become an exporter to Europe. Whether they choose to do so remains to be seen.

For those of you who are steel buyers, you should watch global developments very carefully, as well as the developments here in the United States.

Steel Market Update Events

If you are interested in hedging your price risk and you would like to learn more about how to do that, SMU will host another Introduction to Steel Hedging (used to be called Hedging 101) Workshop on April 26 & 27 (half day each day). You can learn more about the workshop agenda, instructors, costs and how to register for this virtual workshop by clicking here or going to: https://events.crugroup.com/steel101/about-steel-hedging-101

John Packard, Founder

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