China weekly: Steel market shows mixed trend

Chinese steel market prices exhibited mixed-trend during the week. Domestic prices of raw materials, intermediates and finished steel increased over the initial days of the week alongside rising futures market gains and supply-side disruptions. However, prices started to decline with losses in the futures market and waning demand towards the weekend.

The steel inventory of key enterprises in China was 13.927 mn t in mid-Nov'21, up 420,400 t from October - or roughly 3% m-o-m, CISA data shows. The average daily crude steel output of key steel enterprises stood at 1.76 mn t in mid-Nov'21. Daily steel production has decreased by 36,700 t compared to October, a decrease of 2.04%, m-o-m.

1. China spot iron ore prices remain volatile: Chinese spot iron ore fines Fe 62% prices opened at $94.70/t CNF China for the week and were assessed at $96.65/t, CNF China towards the weekend. However, in the mid-week, prices had rebounded to $103.45/t CNF China.

The approaching winter, steel production curbs, sintering restrictions, and poor construction demand are expected to weigh on China's demand for iron ore, further pressurising iron ore export offers.

Demand for medium-grade fines sold at a premium remained weak, with mills heard to still prefer discounted medium grade fines amid low finished steel demand. The continued downward trend in iron ore prices was due to news of potential resurgence in Covid-19 cases in provinces like Jiangsu, Zhejiang and Shanghai city, dampening demand outlook.

Iron ore inventory at major Chinese ports increased to 150.9 mn t this week as against 150.2 mn t a week ago, as per data maintained by SteelHome.

a) Spot pellet premium down w-o-w: The spot pellet premium for Fe 65% grade pellets was assessed at $48.75/t, down $16.7/t w-o-w. The thinning margins reduced demand for direct feeds like lumps and pellets. There is expectation of a disruption in supply from Australia along the Chinese coast. This may enhance imports from other regions like India.

Total pellet inventory at China's major ports was recorded at 4 mn t as against 4.3 mn t, a week ago.

b) Spot lump premium gains on anticipated sintering restrictions: The spot lump premium was at $0.1245/dmtu as against $0.1080/dmtu a week ago. With Winter Olympics approaching, sources expect sintering restrictions to become more stringent, providing support to lump premiums in the near term. In addition, falling coke prices were also seen as supporting lump usage over pellets in furnaces.

2. Coking coal prices flat despite supply constraints: Seaborne coking coal prices remained flat this week, despite the prevailing weather-induced supply tightness in Australia. However, trading activity remained thin as most end-users stayed on the sidelines, showing no urgency to transact in the short term due to the recent volatility.

Meanwhile, the prediction about heavy rainfall in the hub of Queensland, Australia has also raised concerns around supply-side disruptions.

Latest prices for the premium HCC grade are assessed at around $364/tonne (t) FOB Australia, $440/t CNF China and $383/t CNF India.

3. China's billet prices rise towards weekend: Steel billets prices in China's Tangshan witnessed a rise of RMB 120/t ($19/t), w-o-w. Domestic billet prices stood at RMB 4,320/t ($676/t), inclusive of 13% VAT. According to data maintained with SteelMint, China's SHFE rebar futures contract for May'22 delivery settled yesterday, 27 Nov'21, at RMB 4,104/t ($642/t).

4. HRC export offers down $5/t: China's HRC export offers slid marginally by $5/t to $775-785/t FOB China as against $780-790/t FOB in the previous week. However, the rally in the steelmaking raw material (iron ore, coke and coal) futures and an increase in domestic HRC prices initially during the week led to a rise in offers from mills which stood at around $810/t FOB, while those from the traders hovered at around $780/t FOB.

In the domestic market, HRC prices moved up by RMB 90-100/t ($14-16) to RMB 4,720-4,780/t ($738-748) (eastern China) compared with RMB 4,630-4,680/t ($724-732)(eastern China) a week ago.

Concerns around the tighter production curbs in Tangshan city with the reinstatement of level 2 anti-smog alert in just a couple of days after being lifted, contributed to a rise in HRC prices. Furthermore, China Iron and Steel Association's (CISA's) announcement about a decline in inventories with traders in major cities led to an upward momentum in the market. However, the decline in futures and a weakening of demand weighed on the prices towards the weekend.

5. Domestic rebar prices up RMB 220/t w-o-w: Rebar producers increased their offers by RMB 210-220/t ($33-34) to RMB 4,650-4,700/t ($727-735) (northern China) in comparison with RMB 4,440-4,480/t ($694-701) (northern China) in the previous week.

China's steelmaking hub of Tangshan introduced more restrictions in production during the week with a major steel mill suspending its second blast furnace. This move, in turn, resulted in bullish sentiments in the rebar futures market. Meanwhile, towards the weekend, weak end-user demand for rebars during the winter season led to a fall in prices.