Nippon Steel expects high China steel prices throughout 2017

2017-08-10

* Strong China steel prices to help support global market

* Possible U.S. trade action on steel still a big concern

* Coking coal prices to fall to $160/T if disruptions solved

* Mulling making composite auto materials of steel, carbon fiber

Aug. 10, 2017 - Nippon Steel & Sumitomo Metal Corp , Japan's biggest steelmaker, expects China's steel prices to remain elevated throughout the year as Beijing's infrastructure spending boosts local construction demand, a senior company official said.

Chinese steel rebar futures surged to their highest since March 2013 this week, lifted also by worries over tighter supply in the coming winter due to Beijing ordering low-quality mills to shut down to curb pollution.

The ongoing strength in China's steel sector, where production is running at record levels and local consumption has cut exports of the metal by nearly 30 percent in the first half of 2017, is helping to boost export margins for Japanese steelmakers, which ship more than 40 percent of their output overseas.

"Beijing's economic stimulus has been bolstering the Chinese economy and domestic consumption will likely stay solid this year even after an autumn congress of the Communist Party of China," Toshiharu Sakae, Nippon Steel's executive vice president, said in an interview.

China's economy grew faster than expected over the first two quarters, putting it on pace to beat a growth target of 6.5 percent for the year even as Beijing tries to keep the property sector in check and manage debt risks.

Most Chinese steelmakers are making profits, and "Chinese steel prices will hover near the current level throughout this year, though I'm a bit anxious about the recent sharp rally," Sakae said.

There is still a big potential threat to steel, however, from the possibility for U.S. trade restrictions, he said.

In April, U.S. President Donald Trump's administration initiated a review of the steel industry that could result in the imposition of tariffs or quotas on imports if they are found to threaten national security.

"If any actions are taken to curb steel imports, it may prompt retaliation by others. Steel products that lost destinations will flow into Asia, including Japan, leading to a collapse of local markets," he said.

COKING COAL ANOTHER WORRY

Sakae was less concerned about iron ore prices spiking recently as they tracked the rising steel market, he said.

Last month, the world's fourth-largest steelmaker forecast a 72 percent jump in its recurring profit for the year through March 2018, saying it could pass higher material costs on to customers by raising product prices amid healthy demand at home and abroad.

But Sakae is worried about coking coal prices that rose unexpectedly after output cuts on strikes and outages in Australia.

"If the disruptions continue, coal prices may rise further as steel demand in China and India are both strong," he said.

"Once output issues are solved, prices should head back to around $160 per tonne," he added.

Coking coal on the Singapore Commodity Exchange was at $195 per tonne on Wednesday.

Another major challenge for steel is new competition from lighter materials.

Aluminum is increasingly used as a steel substitute to make lighter cars, part of growing efforts to tackle global warming and reduce carbon footprints.

"We are trying to lower weight, cost and environmental impact of steel, and we believe steel is competitive," he said.

"But for car makers, using aluminum and carbon fiber is the fashion, especially for high-end cars."

One way to fight back is to offer composite materials of steel and other materials such as carbon fiber or resin.

"We are considering making light and high-performance composite materials," he said.