China weekly: Steel market relays mixed sentiments over production curbs

Finished steel's market prices in China showed an uptrend this week alongside news of tightening of production restrictions. Also, good weather conditions lent support to rebar prices. On the other hand, HRC export offers reported a decline over subdued buying interest while the spot iron ore prices weakened on possibility of lower production.

Product-wise sentiments

1. China spot iron ore prices: Chinese spot iron ore fines Fe 62% prices opened at $157.75/t CNF China for the week and decreased to $139.7/t, CNF China. However, towards weekend prices picked to $145.05/t, CNF China. Iron ore pricing sentiment recovered amid onset of the peak construction season of September and October and the belief that prices may have hit a near-term bottom. Steel demand and production recover in September and so iron ore demand gets a boost, but because of the cutbacks, pig iron output may fall further this month and depress iron ore demand accordingly.

Nine mills in north-east China have received production cut notices. Mills in Shandong province have been ordered to complete their annual production target by end-Nov'21 as assessments and corrections are planned for December. Towards the beginning of the week, more production cuts were heard to have been implemented in Guangxi, as production restrictions continued to be rolled out. As per data compiled by SteelHome consultancy, iron ore inventory at major Chinese ports were recorded at 131.4 mn t as against 129.4 mn t assessed a week ago.

a) Spot pellet premium down w-o-w: Spot pellet premium for Fe 65% grade pellets were assessed at $36.05/t as against $38.55/t assessed last week. Coke prices continued to surge in China, which tend to tighten the tolerance among mills towards impurities. Mills were heard to have excess of lump stocks and therefore not procuring pellet cargoes for a while. However, the high coke prices are expected to push pellet demand up as it requires less consumption than lumps. As per data compiled by SteelHome consultancy, pellet inventory at major Chinese ports were recorded at 4.4 mn t, as against 4 mn t assessed last week.

b) Spot lump premium falls on limited demand: Spot lump premium was at $0.0705/dmtu as against $0.0915/dmtu last week. Lumps demand collapsed. Interest for lumps diminished as usage declined, with mills restricting lumps usage to limit steel production. Demand also waned as end-users felt that current levels were not economical. Portside lump inventories built up and seaborne lump premiums continue to be battered.

2. Coking coal offers up w-o-w: Seaborne coking coal export prices continued to reach new heights this week, surging by $20/t from Monday on limited supply. Apart from the impact of lockdown measures on trading activity in South East Asia, buying interest was hit by lofty prices. A deal for 75,000 t of premium low-volatile hard coking coal was closed at $269?270/t FOB for November laycan late this week, whereas last week contracts for premium material were signed at $248?250/t FOB.

The latest price for the premium HCC grade was assessed at around $269/t FoB Australia, up $21/t as against $248/t FoB in the previous week.

3. China's domestic billet prices rise RMB 90/t w-o-w: Steel billet prices in China's Tangshan rose by RMB 90/t ($14/t) w-o-w. Domestic billet prices stood at RMB 5,040/t ($781/t), inclusive of 13% VAT. According to data maintained with SteelMint, China's rebar futures contract for Jan'22 delivery closed at RMB 5,408/t ($838/t) on 3 Sep'21, witnessing a sharp increase of RMB 186/t ($29/t) w-o-w.

4. HRC export offers down $10/t w-o-w: Chinese mills were offering HRCs for export at around $960-990/t FoB China, down by $10/t compared with $970-1,000/t FoB China in the previous week. Continued air of uncertainty around the export tax concerns and increased marine freight costs kept buyers on the sidelines.

In the domestic market, HRC prices moved up by RMB 120-160/t to RMB 5,760-5,800 (eastern China) compared with RMB 5,600-5,680/t (eastern China) a week ago. A spike in the futures market on the news of tightening of production curbs along with an anticipation of more credit inflow in the market helped support market sentiment. Also, the market was abuzz with the news of about 20 mills having announced their maintenance plans in September.

5. Domestic rebar prices up w-o-w: Prices in the domestic market this week stood at RMB 5,140-5,170/t (northern China), up by RMB 120-130/t as against RMB 5,010-5,050/t (northern China) a week ago. Improvement in demand over restocking activities and an increase in construction activities over better weather conditions resulted in an uptrend in rebar prices this week.

6. Shagang Steel lifts scrap procurement prices by $12/t: China's largest EAF steelmaker, Shagang Jiangsu Steel, announced a sharp hike in the scrap purchase price for the first time in Sept'21, after three continuous price cuts in August. The steel producer raised its scrap buying price by RMB 80/t ($12) for all grades effective from 3 Sept, sources confirmed.

After the latest round of revision, the price of HMS (6-10 mm) stands at RMB 3,780/t ($585), inclusive of 13% VAT, delivered to headquarters.