China weekly: Steel market exhibits mixed trend

Chinese steel market exhibited mixed sentiments this week amidst tighter production curbs, and with the People's Bank of China reducing the reserve requirement ratio (RRR) of commercial banks by 0.5 points.

Prices of raw materials as well as finished steel witnessed a slight upward trend. However, those of HRCs saw a marginal decline owing to weak downstream demand.

Monthly export-import highlights

i) Steel export volumes stood at 4.36 million tonnes (mn t) in Nov'21, down 3% as against 4.50 mn t in Oct'21.
ii) Steel import volumes rose by 26% m-o-m to 1.42 mn t in Nov'21 from 1.13 mn t a month back.
iii) Iron ore (including pellets) imports were recorded at 104.96 mn t in Nov'21, increasing by 15% against 91.61 mn t a month ago.

Product-wise sentiments

1. China spot iron ore prices volatile: Chinese spot iron ore fines Fe 62% prices opened at $100.40/tonne (t) CNF China this week and closed at $102.60/t, CNF China towards the weekend. Uncertainty caused by wet weather condition in Australia continued to support prices. Trading activity remained limited from the China market on lackluster demand tracking domestic coking coal sentiments.

A few sources expected that demand for medium-grade fines may remain muted on limited procurement activity from steel mills which preferred staying on the sidelines. Negative import margins weighed on seaborne demand for products like Pilbara Blend Fines. Seaborne demand for discounted medium-grade fines remained relatively more resilient amid low liquidity.

Iron ore inventory at major Chinese ports stood at 156 mn t this week as against 155.4 mn t a week ago, as per data maintained by SteelHome.

a) Spot pellet premiums inch down w-o-w: Spot pellet premiums for Fe 65% grade pellets were assessed at $52.05/t, inching down w-o-w as against $52.1/t seen in the last week. Demand for pelletising concentrate was moderate, while the same for high-grade sintering fines and concentrate dropped. According to sources, "Pellets are expensive and therefore it is more cost-effective to make pellets with imported concentrate."

b) Spot lump premiums up w-o-w: Spot lump premiums were seen at $0.1350/dmtu as against $0.1335/dmtu a week ago. Lump demand remained under pressure amid tight steel production curbs in Tangshan. The recent strength in lump demand was also heard to be mainly from traders as end-user demand remained weak with low blast furnace lump usage expected in the short term.

2. Coking coal prices increase on supply concerns: Seaborne coking coal prices increased this week on continuous rainfall and flooding in eastern Australia. The benchmark premium low-volatile grade prices jumped by 7% w-o-w on FOB basis amid deteriorating weather conditions in Australia's main coking coal production belt in Queensland. Earlier, however, seaborne coking coal prices had fallen by 15% in the week-ago period. Active trading interest was observed for premium mid-volatile coking coal but deals were not heard due to a bid-offer mismatch of around $20/t, as per reports.

The latest price for the premium HCC grade is assessed at around $341/t FOB Australia, up $24/t compared to $318/t FOB a week ago.

3. China's billets prices up towards weekend: Steel billets prices in China's Tangshan increased by RMB 20/t ($3/t) w-o-w on 10 Dec'21 to RMB 4,310/t ($677/t), inclusive of 13% VAT. According to data maintained with SteelMint, the Chinese rebar futures contract for May'22 delivery closed at RMB 4,322/t ($678/t) on 10 Dec'21, a fall of RMB 62/t ($10/t), w-o-w.

4. HRC export offers up $5/t w-o-w: Chinese mills' HRCs exports offers were assessed at $775-785/t FOB China this week, up $5/t with an uptick in the futures market. Last week, offers were around $770-780/t FOB basis.

In the domestic market, HRCs are being traded lower at RMB 4,780-4,810/t eastern China ($750-755/t), down RMB 40/t ($6/t) compared to RMB 4,820-4,850/t eastern China ($757-761/t) a week ago. Tight production curbs and weak downstream industrial demand have contributed to a decline in HRC prices this week.