China weekly: Market exhibits mixed sentiment

This week, the nation's domestic steel prices reported a sharp decline through the volatile futures. However, prices picked up with the recent announcement on production cuts for controlling pollution. Domestic billet, HRC, and rebar prices reported a sharp decline on a weekly basis. Iron ore prices also fell due to a pessimistic outlook. However, coking coal offers reported a marginal increase this week.

Product-wise sentiments

1. China's spot iron ore prices drop- Chinese spot iron ore prices opened at $183.4/t CNF China for the week and decreased to $171.2/t, CNF China towards the weekend. Liquidity was thin as market sources were pessimistic on the outlook due to the production controls. Production controls are unlikely to loosen up and mills are still focused on destocking. Margins have taken a backseat and the excess inventory is a more pressing concern even as several mills were heard selling off inventory even while incurring losses. As per data compiled by SteelHome consultancy, iron ore inventory at major Chinese ports was recorded at 128.05 mn t as against 128.25 mn t assessed a week ago.

i) Spot pellet premiums down w-o-w- Spot pellet premiums for Fe 65% grade pellets were assessed at $49.05/t as against $51.35/t assessed last week. The iron ore pellets market continued to fall on subdued demand. Seaborne pellet premiums edged lower on the week, with higher spot supply from Indian producers, while demand from China was quiet.

The strong pressure from the Chinese government to reduce steel output in 2021 could result in steel mills' production decreasing in Aug'21. To reduce crude steel output, Chinese mills will be lowering the Fe level of the blending mix that goes into blast furnaces, and to reduce the Fe level, usage of premium products, especially iron ore lumps and pellets, is likely to fall.

As per data compiled by SteelHome consultancy, pellet inventory at major Chinese ports was recorded at 3.8 mn t, as against 3.9 mn t assessed last week.

ii) Spot lump premium slashed w-o-w- The spot lump premium was at $0.4000/dmtu as against $0.5350/dmtu last week.

Market participants expected lump premiums to drop further amid falling demand, as in-house sinter is sufficient for mills at the moment. Lump premiums continued to look for a bottom as lump demand remained depressed. Portside lump stocks were heard to have risen further from 19.2 mn t to 19.9 mn t, as per data compiled by SteelHome consultancy.

2. Coking coal offer increases marginally- Price of the Australian hard coking coal (HCC) increased amid tight spot supply and strong buying interest for Sept'21 delivery. Besides, exportable cargoes of seaborne coking coal are still limited, without active offers for PLV HCC, according to market sources. Moreover, Chinese coking coal and coke futures surged this week, as the resurgence of the coronavirus in the country sparked supply concerns. The latest prices for the premium HCC grade are assessed at around $219.50/t FoB Australia which was around $215.50/t FoB China.

3. Domestic billet prices fall RMB 190/t w-o-w- Steel billet prices in China's Tangshan fell sharply by RMB 190/t ($29) w-o-w. Domestic billet prices stood at RMB 5,080/t ($783/t), inclusive of 13% VAT. According to data maintained with SteelMint, the Chinese rebar futures contract for Oct'21 delivery closed at RMB 5,379/t, down by RMB 358/t ($55/t) w-o-w.

4. HRC export offers up w-o-w- HRC export offers scaled up by $40-50/t to $1,000-1,040/t FoB China as compared with $950-1,000/t FoB last week. Continuous market chatter on the Chinese government's plans to impose a 20% duty on HRC exports at the end of August has impacted market sentiments, resulting in an upsurge in export offers.

In the domestic market, HRC prices were slashed by RMB 210/t w-o-w to RMB 5,790-5,800/t (eastern China) as against RMB 6,000-6,010/t (eastern China) a week ago. Domestic market sentiments dwindled as HRC futures fell at the beginning of the week.

However, towards the weekend, prices moved up after the announcement came of a suspension order for sintering machines between 3-10 Aug'21 in the Tangshan province. This announcement was made in a bid to fight ozone pollution.

5. Domestic rebar prices fall w-o-w- Seasonal slowdown along with adverse weather conditions in several regions of China have led to a halt in construction activities. Moreover, a spike in Covid cases triggered logistics issues, impacting the timely delivery of steel products.

This, in turn, resulted in a decline in domestic rebar prices by RMB 150-170/t to RMB 5,100-5,150 (northern China) as against RMB 5,250-5,320/t (northern China) a week ago.

6. Shagang Steel trims scrap procurement price by $8/t- China's largest EAF steelmaker, Shagang Jiangsu Steel, announced the first reduction in scrap procurement prices for Aug'21 after a month's gap. The steel producer has cut its scrap purchase prices by RMB 50/t ($8/t) for all grades effective from 6 Aug'21. After the revision, the current price for HMS (6-10 mm) stands at RMB 3,800/t ($587), inclusive of 13% VAT, delivered to headquarters.