Indian coil sales squeeze Vietnam country differentials

Increased competition among coil exporters to Vietnam has shrunk regional country spreads to within $5/t, with Indian sales volumes leading all other origins.

Argus country differentials for SAE1006 grade hot-rolled coil (HRC) cfr Vietnam for Japan, South Korea and Taiwan (JKT) maintained premiums of $30/t, $10/t and $5/t respectively to Chinese and Indian coils in June. But those premiums have fallen to $0-5/t this month, as a spike in spot sales of India-origin HRC for July shipments forced JKT mills to reduce offers or exit the market. Trading firms have been the main sellers, with the supplies sourced from Indian mills JSW, Essar Steel and Tata Steel.

India sold an estimated 100,000t of HRC to Vietnam for July shipment. This is much higher than the 50,000-60,000t sold from China for August and early September shipment, 30,000t from Japan for August shipment and 10,000-15,000t from Taiwan, a Vietnamese consumer calculated.

The South Korean country differential had maintained the widest premium to the Argus Asean HRC index. The premium was at $30/t in the latter part of June, but then fell to $20/t on 28 June and flat to the index on 4 July, before rising back to a $5/t premium on 10 July. Japanese coil had priced at a $55/t premium to index, and South Korean coil at a $40/t premium, early in the year.

Vietnamese buyers' unwillingness to pay a premium for JKT coils has also been a factor driving the differentials lower. Weaker sales for downstream products including HDG during Vietnam's rainy season led buyers to place fewer orders for higher-quality coils, Vietnamese mills and traders said.

"Why choose to buy at a much higher level when the lower-priced coils from India can meet our requirements?" a Vietnamese trader said. Indian mills were hungry for orders and were inviting bids aggressively as low as $510/t cfr Vietnam for SAE1006 grade coils this week, below offers of $520-525/t from China, the trader added.

The increased competition has narrowed country differentials, but has not prevented strength in China's domestic market from lifting overall seaborne market levels. The Asean HRC index has risen by 4pc to $513/t cfr Vietnam from a recent low of $493/t on 18 June.

The pricing strength in southeast Asia, which is a bright spot in global markets that are facing weaker demand from ailing auto sales, has attracted offers from as far away as Brazil. A Brazilian mill expressed willingness to receive orders at $510/t cfr Vietnam for SAE1006 HRC early this week, Vietnamese traders said.

Slower construction steel demand in India because of the onset of monsoon rains has helped force Indian mills to rely more on export sales recently. India's monsoon typically runs from June-September. Chinese exporters, with stronger domestic prices keeping their offers higher, are waiting for the Indian sales to slow down. "We can only sell after India sells out of its allocation at cheaper prices," a Chinese trader said.

Vietnam's import steel requirements could be pinched in the next 2-3 years because of rising domestic output from Vietnamese mills Formosa Ha Tinh Steel and Hoa Phat, several Chinese traders said. The traders are actively exploring potential customers in other southeast Asian countries, or will face the prospect of China having to cut production instead of selling at a loss amid rising output, they said.