Weekly: Chinese steel market highlights

Chinese steel market showed pessimistic sentiments this week amid falling futures and heavy rainfall witnessed in several regions. HRC contracts listed on the Shanghai Futures Exchange (SHFE) for January expiry have come down sharply by around $35 in the last ten days. HRC futures stood at RMB 3,689 ($545) on 16 Sept'20 compared to RMB 3,942 ($582) on 03 Sept'20.

Domestic HRC and billet prices reported a fall, however, rebar prices remained stable. However, HRC export offers declined on falling domestic prices. Rebar offers remained firm. Coking coal prices hit a 5-month high with improved demand from importing nations including China.

Other major highlights are mentioned below-

• Crude steel output hit an all-time high at 94.85 mn t in Aug '20, up by 2% against 93.36 mn t in Jul '20.
  
  
• Crude iron ore production stood at 77 mn t in Aug'20, up 5% as against 73.03 mn t in July'20.
  
  
• Shagang Steel lowered scrap purchase prices twice this week by a total cut of RMB 60.
  
  

China spot iron ore price dropped during the week-
Chinese spot iron ore (fines FE 62%) prices opened at $130.5/ t this week, dropped to $125.2/t towards the end of the week. The prices slumped on the back of the weaker purchasing power of steelmakers. Mills margins remain pressured on high raw material costs, driving mills to replace mid-grade fines with a combination of high-grade and low-grade fines over the last few weeks.

However, with low-grade fines becoming expensive, few Chinese mills have reduced using low-grade fines and started to utilize more discounted mid-grade fines in sintering.

As per data compiled by SteelHome consultancy, iron ore inventory at major Chinese ports decreased to 118.3 mn t this week as against 118.95 mn t assessed a week ago.

Spot pellet premium upon increased demand-
Spot pellet premium for Fe 65% grade pellets assessed at $ 18.05 /t as against $17.85/t last week.

Pellet premiums continued to rise on increasing end-user utilization of high-grade and direct feed iron ore besides its increased efficiency and cost-effectiveness. High-grade pellet premiums were expected to remain supported on improving European and North Asian demand.

As per data compiled by SteelHome consultancy, pellet inventory at major Chinese ports dropped to 10 mn t as against 10.6 mn t assessed a week ago.

Spot lump premium rises due to cost-efficiency-
Spot lump premium witnessed this week at $ 0.0735/dmtu as compared to $ 0.0675/dmtu assessed last week. Lump premium rose on the back of better cost efficiency relative to sintering fines and speculative interest due to sintering controls in Tangshan.

Coking coal prices hit five months high on increased demand-
Seaborne coking coal price surged to its five-month high this week, with increased demand from steel producers in China, India, Japan, and South Korea. Weather-related supply concerns in Australia further support the upside momentum.

Chinese buying interest has improved considerably on account of favourable prices relative to domestic material. Some Chinese end-users, however, continue to stay on the sidelines as import quota limitations and customs-related hassles remain in place.

Most Indian end-users are currently holding back their imported coking coal purchases due to the higher prices.

The latest offers for the Premium HCC grade are assessed at around $133.00/t FoB Australia which was $111/t FoB basis a week back.

Domestic billet price falls on weaker futures-
This week, Chinese domestic billet prices settled with a sharp decrease of RMB 50, against last week's closing. The prices of commonly traded Q235 billet 150mm diameter were reported at RMB 3,370/t ($499/t) in Tangshan, inclusive of 13 % VAT. The bids for imported billet in China saw a rise and were ranging from $440-445/t, CFR, for non-ASEAN billets.

HRC export offers move down by $10 on falling domestic prices-
The mills have reduced their export offers by $10/t this week with an intent to bolster profit margins amid falling futures and declining domestic prices. Also, the traders anticipate a decline in domestic downstream demand ahead of National holidays starting from 1-8 Oct.

Currently, HRC export offers are hovering in the range of $515-520/t Fob basis which was around $525-530/t FoB basis.

Meanwhile, domestic HRC prices witnessed a decline of RMB 30/t on the week to RMB 3,860-3,890/t (Eastern China).

Rebar export offers firm amid support from strengthening RMB-
The strengthening of RMB against $ kept the Rebar export offers largely unchanged at $485-490/t Fob basis against the previous week. However, the buyers continued to bid lower by around $30-40/t as they continue to seek cheaper materials.

The domestic rebar prices also remained stable at RMB 3,680-3,700/t (Eastern China) as the weakening futures and heavy rainfalls weighed on the demand.