Slab scarcity to push Brazilian steel prices up: CSN

Brazilian steel and iron ore producer Companhia Siderurgica Nacional (CSN) expects a 10-15pc increase in flat steel prices in March, as a result of higher slab costs owing to limited availability.

"We cannot buy slab for less than $500/t," executives said. "I think they will get closer to $560/t and not $520/t. With this scenario the increases will be of 10-15pc. This is the scenario we are working with. On 25 March we will have a 10-15pc price rise."

Demand for slab in the domestic Brazilian market has been very strong recently, especially from CSN, a market participant told Argus. The company produces its own slab but also relies on purchases in the merchant market.

Its latest results show fourth-quarter slab production falling by 7pc year on year to 1.02mn t. The company said inventories increased in the last quarter as a result of additional purchases of slab in anticipation of its blast furnace No. 3 stoppage.

CSN's slab production costs increased by 23pc on the year in 2018 to 1,652 reals/t ($438/t) as a result of the appreciation of the dollar against the real, and higher raw material costs. In the latest quarter costs reached R1,806/t, up by 6pc on the year.

Since the fatal dam rupture in Brumadinho on 25 January, which has resulted in mining firm Vale announcing cuts in iron ore and pellet production, prices for iron ore have significantly increased. The Argus ICX 62pc Fe fines index is at $86.75/dmt cfr Qingdao today, up from $74.80/t a month ago.

Reduced supply of iron ore fines and pellets — and subsequently higher prices — is also prompting some slab buyers to buy more in the merchant market, rather than rely so heavily on their own production. Market participants this week made reference to additional enquiries for slab from certain mills both in Brazil and overseas, citing pellet supply concerns.

With some Brazilian slab sellers focusing on the US market, where they are allowed to export under a quota, a market participant said there is not enough supply to fulfil the additional domestic demand.

Tight slab supply fundamentals are also reflected in the CIS market, with the Argus weekly fob Black Sea slab assessment currently at $487.50/t — up from $415/t fob at the start of February.

Government data show that of the 815,500t of semi-finished products — the majority of which is slab — Brazil exported in January, 390,960t were sent to the US and 134,930t to Italy. The rest were exported to other countries in Europe and the Americas, with small quantities going to Asia.