TRADE REVIEW: Asian Q2 steel outlook cautious amid tariff uncertainties, possible output cuts

The Asian steel market entered the second quarter of 2025 amid heightened trade tensions, looming tariff threats and protectionist safeguards, all set against a backdrop of plunging domestic Chinese futures and sharp declines in seaborne steel prices in early April.

Amid the turmoil, Asian steel market participants have hunkered down, adopting a cautious approach as they navigate an opaque policy and trade landscape, including possible retaliation over US reciprocal tariffs.

Asian HRC mills seek new export markets

Asian hot-rolled coil prices are expected to decline in Q2, as the escalating US-China trade dispute and uncertainty over China's steel output cuts add strain to a market already grappling with weak exports and narrowing margins.

Export volumes in Asia remain under pressure from high US tariffs and reduced HRC quotas in the EU, pushing mills to seek alternative markets and intensifying competition for exports to regions like the Middle East and South America.

Market participants said increasing supply in the domestic Chinese market will continue to weigh on HRC prices, with production cuts seen as a necessary measure to support prices.

Rising trade barriers on flat steel exports from China, particularly to key destinations like Vietnam and South Korea, have further exacerbated the sluggish market.

As a result, spot HRC prices on a CFR Vietnam basis have diverged from FOB China prices, according to data from Platts, part of S&P Global Commodity Insights, with rerollers in Vietnam instead turning to Indonesia, Japan and Malaysia for supply.

The Platts-assessed spread between CFR Vietnam and FOB China HRC reached a four-year high of $35/mt on April 9, surpassing freight rates of $15-$17/mt.

The number of heards published for trades, bids and offer indications of non-Chinese origin HRC on a CFR Vietnam basis rose to 116 in Q1, from 72 in Q4 2024, Platts data showed, likely due to China's absence during the Lunar New Year holidays.

Notably, the number of heards for non-Chinese origin HRC on a CFR Vietnam basis in Q1 surged more than sixfold year over year, with market participants attributing the increase to protectionist measures by Vietnam's policymakers against Chinese HRC.

In India, the Directorate General of Trade Remedies on March 18 recommended a 200-day provisional safeguard duty of 12% on imports of non-alloy and alloy steel flat products, aiming to protect the domestic industry from the impact of cheaper imports. A final decision is still pending.

Following the safeguard announcement, domestic Indian steel prices began to strengthen. The potential implementation of the duties is expected to benefit local producers by limiting low-cost imports, although end-users have raised concerns about potential inflationary pressures.

Weak demand, supply glut weigh on Asian longs

Asian billet and long steel prices are likely to come under significant pressure in Q2, as supply continues to outpace demand amid a surge in China's export volumes.

In Q1, Platts assessed 5SP 130 mm CFR Manila billet prices down 4% quarter over quarter at $462/mt, while CFR Southeast Asia rebar prices fell 6.1% to $475/mt over the same period.

Rebar demand in China has largely followed seasonal patterns, with no significant deviations to support prices. The price decline is also attributed to the lack of new stimulus policies following the conclusion of the country's Two Sessions, leaving the market without fresh momentum for growth.

"[Although China has set out to increase fiscal support for the infrastructure sector], infrastructure investment and its steel demand may still struggle to gather pace through 2025, as part of the fiscal stimulus would be used to pay down or swap local governments' existing debts," Paul Bartholomew, senior analyst for metals and mining at Commodity Insights, said.

Domestic Chinese steel demand has been declining since the second half of 2021, following the end of a two-decade boom in the country's property sector. Market sources said this has prompted both the government and industry stakeholders to adopt strategies such as boosting exports of billets and rebar and controlling crude steel production.

Meanwhile, overcapacity and slow downstream demand are expected to drive a year-over-year increase in China's exports, according to market sources. Chinese billet exports surged 101.3% year over year to 6.2 million mt in 2024, data from S&P Global Market Intelligence's Global Trade Analytics Suite showed.

Amid weak home buying activity and a bearish steel pricing outlook in China, billet demand slightly outpaced rebar demand in Q1, with the Platts-assessed spread between domestic Chinese rebar and billet narrowing 43.5% quarter over quarter to Yuan 122/mt.

The competitive pricing of rebar has become more apparent, with mills heard selling billets at a margin and offering rebar with little to no production margin.

Some Chinese long steel mills, reportedly facing financing pressures in the near term and reducing capacity due to current margin costs, have been incentivized to explore overseas market opportunities, according to market sources.

While some mills were heard to have ramped up production of wire rods, shifting from rebar production amid poor margins, logistical constraints persist, with procured raw materials requiring three to four weeks for delivery to production sites.

"Consequently, during a market downturn, as we are currently experiencing, these mills will continue to use previously purchased high-priced raw materials while selling their finished products at lower prices, which significantly impacts their profitability," a China-based trader said.

Source: S&P Global