China weekly: Steel prices rise post-holidays, HRCs remain flat

Chinese steel prices moved up this week except in domestic HRCs as the market resumed after the festive holidays. Restocking activities boosted iron ore prices, while supply constraints pulled up coking coal prices further.

However, slow overseas demand kept HRC export offers range-bound while concerns arising out of curbs over power consumption extending to downstream industries weighed down on domestic market prices.

1. China spot iron ore prices rise on restocking activities: Chinese spot iron ore fines Fe62% prices opened at $94/tonne (t) CNF China for the week and increased to $110.15/t, CNF China towards the weekend. The approaching Golden Week holidays activated restocking demand and hence spot prices rebounded this week.

However, demand for iron ore from China is expected to remain weak due to cuts in steel output and energy consumption, further pressuring iron ore prices. The bearish outlook on the property market has triggered worries across related sectors. The market expects stricter governance measures to be taken against the property market, which would result in slow steel demand growth.

As per data compiled by SteelHome consultancy, iron ore inventory at major Chinese ports were recorded at 130 mn t this week, as against 130.1 mn t a week ago.

a) Spot pellet premiums up w-o-w: Spot premiums for Fe 65% grade pellets were assessed at $58/t as against $53.25/t assessed last week. Due to resumption after the Mid-Autumn holidays, the market witnessed a slight change with an expectation of renewed demand for pellets. However, the actual market dynamics are expected to change after the Golden Week holidays.

b) Spot lump premiums unchanged w-o-w: Spot lump premiums were assessed at $0.0250/dmtu, stable w-o-w. Although most sources still expect some downside to lump premiums in the short term as they found cost efficiency in lumps at current premium levels.

2. Coking coal prices rise further on tight supplies: Seaborne coking coal prices continued to surge this week, on the back of active trading in the ex-China Asian markets amidst tight spot supply. The Chinese market continued witnessing shortages of both imported and domestic coking coal amid ongoing safety and environmental regulations and limited availability of non-Australian premium materials, while demand remained robust on healthy steel margins.

Earlier this week, a trade was reported for 75,000 t of Australian premium mid-vol Moranbah North, with a mid-Nov laycan. A 30,000 t of the cargo was concluded at $395/t FOB, while another 45,000 t was concluded on a floating price based on PLV HCC FOB Australia.

Latest prices for the premium HCC grade are assessed at around $402.00/t FOB Australia, which was around $379.00/t FOB basis a week ago.

3. Domestic billet prices up towards weekend: Steel billet prices in China's Tangshan increased by RMB 30/t ($5/t) w-o-w to RMB 5,240/t ($810/t), inclusive of 13% VAT. According to data maintained with SteelMint, the Chinese SHFE rebar futures contract for Jan'22 delivery closed on 24 Sept'21, at RMB 5,468/t ($845/t), up by RMB 10/t ($1/t) w-o-w.

4. HRC export offers unchanged w-o-w: The HRC export offers remained pegged at $970-1,000/t this week owing to the late start of activities post the Mid-Autumn festive holidays.

Fall in the futures market and the long-awaited announcement on an export tax have kept buyers on the sidelines in the overseas market. Also, the availability of cheaper alternatives and Covid concerns weighed on demand for Chinese HRCs in the South East Asian markets.

However, domestic market prices fell by RMB 50-60/t to RMB 5,680-5,720/t (Eastern China) as compared with RMB 5,730-5,780/t (Eastern China) a week back. Increasing production curbs to reduce power consumption raised questions on demand from the manufacturing sector, a key HRC-consuming industry.

5. Domestic rebar prices pick up on the week: Prices spiked as the market resumed post the holidays over expectation of low production volumes in the upcoming months. However, prices shed some of the gains and remained up by RMB 180/t w-o-w to RMB 5,480-5,520/t (Northern China) against RMB 5,300-5,340/t (Northern China) in the preceding week. Demand from the construction industry was steady, but traders slowed their procurement rates as prices started to fall towards the weekend.