Indian mills book 100,000 t of billet exports on renewed China demand

In a key recent development, Indian state owned mills have booked around 100,000 t of steel billets for exports in the last one week, with a significant renewal in Chinese buying interest for seaborne cargoes, SteelMint notes.

A state-owned steel mill concluded an export tender for 30,000 t of 4SP grade billet (150mm) at $620-625/t FOB India east coast on 9 Sept'21, which was higher by $30/t from a tender concluded on 8 Sept for $590-$595/t FOB and another deal finalised last weekend at a similar price level.

A leading exporter of billets, India recorded a 33%, m-o-m, rise in export volumes in Jul to 0.73 mn t against 0.55 mn t in Jun. Export volumes are recorded at around 6-7 mn t per annum.

Futures rise on firm demand

The recent upsurge in Chinese buying interest can be tracked directly to the rise in Chinese steel futures with the commencement of the peak autumn steel demand season and good weather supporting construction activities. For example, the most-active steel re-bar contract on the Shanghai Futures Exchange (SHFE), for Jan'22 delivery, rose to RMB 5,682/t ($879), witnessing a noticeable recovery of RMB 230/t ($36/t) against the closing on 8 Sept.

Compare this with the same re-bar contract on SHFE that hovered at around RMB 5,290 ($816.67) on 2 Sept. This means that re-bar futures prices have increased by more than $60/t in about a week's time.

Steel billet prices in China's key steelmaking province of Tangshan rose by RMB 90/t ($14) last week. Steel billet prices in China's Tangshan rose by RMB 50/t ($8/t), d-o-d, on 9 Sept'21 and stood at RMB 5,170/t ($800/t) inclusive of 13% VAT, as per SteelMint reports. I

Coal rallies on tight supply

Curbs imposed on energy-intensive steel smelting in the leading steelmaking provinces have kept domestic steel prices high. That apart, fast-increasing coking coal and metallurgical coke prices in the backdrop of supply tightness are pushing steel prices higher.

Supply concerns persist with quarantine rules impeding shipments from Mongolia. On top of that the government's recent announcement of mine inspections from Sept-Dec has aggravated supply concerns. Domestic prices for premium low-volatile coking coal reached RMB 4,035/t ($625.70), surpassing the price cap of RMB 3,500/t imposed last week by the National Development and Reform Commission. An unofficial ban on Australian coal exists since late-2020.

Cost pressure

So, the cost pressure for blast furnace mills in China is boosting steel prices, while the EAF mills are comparatively better placed in terms of costing. Imports in such a scenario have become viable to sustain the seasonal upsurge in demand.

Rising Chinese interest in imported billet cargoes from Vietnam and the Middle East has pushed up prices of late, although continuing power supply problems have impacted steel production and imports from key seaborne billet supplier Iran, which exports around 5 mn t of semi-finished steel every year. This is playing out to India's advantage, it seems.

How long will the rally last?

China's pledge to cap domestic steel production in the 14th Five-Year Plan period, constrained supply from Mongolia and restrictions on coal imports are likely to keep domestic supplies tight. Coupled with this, increasing steel demand for construction in the peak season is expected to keep domestic steel prices high thereby encouraging imports. There are the significant upsides for Indian exporters.

However, past experience shows that the Chinese authorities choose to intervene when domestic prices rise above a level that is considered to hurt the downstream industries. This was recently evidenced by the government's crackdown on speculation and efforts to tame commodity prices. So, if domestic prices are sought to be brought under control Chinese import demand could subside. This should count as a significant downside, however.