The upcoming reduction in Egyptian safeguard tariffs on April 12, combined with the still strong domestic steel market, is generating billet appetite among Egyptian buyers.
Egypt was previously a significant billet importer, accounting for around 10pc of Russian and Ukrainian exports alone since 2016. But as Egyptian authorities mulled safeguard measures on billet and longs imports, volumes dropped as it became less attractive for re-rollers to import. In 2016, Egypt imported 3.5mn t of CIS billet, while in 2019 it fell to just 1.8mn t.
Today’s Egyptian rebar prices are in the range of EGP9,250/t ($587/t) and EGP9,980/t ($633/t) ex-works including VAT at 14pc. The total billet capacity of Egypt’s integrated mills is 8mn t/yr. Ezz Steel is its biggest steel producer with a capacity of 3.5mn t/yr of rebar and wire rod, and operates a direct reduced iron mill.
Last week, a Black Sea billet sale was heard to Egypt at $360/t cfr, meaning the associated safeguards would be at the minimum level of $74/t. Egyptian mills estimate rolling costs to be around $50/t, so breakeven point for re-rollers would be around $484/t, which allows them to comfortably compete with integrated mills.
In addition, on 12 April the safeguards will drop from 16pc on billet imports to 13pc, meaning the tariff level for billet purchased at $360/t cfr would be $60/t, bringing the cost of production to $470/t.
While scrap prices have taken a nosedive, iron ore prices have remained stubbornly high. Over the past three weeks, the Argus daily Turkey ferrous 80:20 assessment has lost $68/t to reach $207/t cfr, while the Argus daily iron ore fines ICX assessment has lost just $7.60/dmt in the same period to reach $81.40/dmt today,
Billet prices have been sliding since a prolonged holding period during the lunar new year holiday, when market participants held off from buying and selling activity amid the coronavirus outbreak. Chinese buyers returned in mid-March but were bidding at much lower levels than CIS mills were offering. Ultimately, in the face of empty order books, CIS mills were forced to accept the price cuts. Over the past two weeks, the Argus daily Black Sea billet assessment lost $45/t to reach $332.50/t today.
Southeast Asian markets have been weighed down by ongoing coronavirus concerns, and Algeria and Tunisia have all but shut down production until at least 19 April, with only one mill in the region heard to still be operating. But if Egypt’s domestic market can remain strong and once again becomes a buying market for CIS mills, this could offer some strength to prices.
The first coronavirus case in Egypt was reported in February, and there are currently 507 active cases and 157 recovered. The government has imposed a 7pm-6am curfew and dramatically scaled back on the number of government employees at work. But it has left responsibility for self-isolation in the hands of the private sector, allowing companies to dictate their own terms for employee absence.