Here is Rystad Energy’s weekly steel and OCTG note from Alistair Ramsay and Marina Bozkurt:

Energy Steel

Steel makers worldwide are starting to feel the pinch as high energy costs and China’s increasing steel trade surplus are starting to bite – China’s net exports surged to 6.95 million metric tons (Mt) in May, the highest this decade.

In China, the squeeze looks especially severe when looking at real-time spreads.

For example, medium (8mm thick) plates are being offered from yuan 5,078 per ton including sales taxes today, a tax-free dollar equivalent value of just $666/t, down from $680 a week ago.

Although iron ore and scrap prices are in retreat at the same time, at a US equivalent of $136/t and $494/t respectively, coke costs are on the rise at $422/t giving us a weighted hot metal (raw material) proxy for the plate producer of $503/t in China and a spread to plate of just $163; below the $200/t mark traditionally associated with break-even conditions.

Steel users in China and now internationally are finally benefiting from the recovery in Chinese supplies that were needed to solve Black Sea-related shortages stemming from the Russia-Ukraine war.

For steelmakers in Europe, margin pressure is also starting to bear with the $200/t threshold getting increasingly close according to some market participants.

Europeans typically pay more for coke and other energy though this is being offset in part by dwindling scrap prices: the Turkish equivalent benchmark to Chinese (heavy steel) material is more than $100/t cheaper right now.

In spite of large falls in regional settlements in May, bids are falling further for June though we suspect European mills will be more reliant on demand reviving than costs retreating to restore nominal profit margins.

Alistair Ramsay, vice president, analysis

Oil Country Tubular Goods

OCTG prices in the North Sea market are soaring rapidly as inventory levels fall and raw material costs rise.

As a result, many European suppliers have passed on a 25% price increase on OCTG products to long-term contract clients in the North Sea.

Japanese mills are not giving fixed pricing, adding to the price concerns.

Pricing will be adjusted based on a raw material formula and agreed upon at the time of material readiness.

Inventory levels are shrinking and there is now no L80 tubing left in European stock after the US mopped up everything that was available.

Mills’ capacities for 13Cr OCTG are quickly filling and prices will continue to rise steeply.

Lead times for non-core customers are being extended.

However, main customers, having consignment agreements with the suppliers, should have a protected volume of OCTG that must be supplied.

The other customers will face problems as all pipe is allocated to forecasts of long-term contracts and suppliers will focus on ‘feeding’ the main customers to keep to their agreements.

Buyers in the North Sea/UK market are already seeing some supply disruptions and they expect this to continue for the next six months, while for higher grades and CRA OCTG longer lead times will likely be a long-term reality, at least for the next year or two.

CRA pricing cannot be fixed for tender submissions as raw material volatility does not allow suppliers to fix for a typical 30-day tender period.

OCTG demand is being supported by oil and gas and geothermal sectors, although there are some concerns about an increase in oil and gas production in the North Sea due to environmental regulations.

Marina Bozkurt, senior analyst