There are signs of Chinese mills shifting sales attention to overseas markets with domestic trade impacted by falling steel futures and rising inventories.
SteelMint learned from trade participants who received fresh offers from Chinese mills and traders for hot rolled coils (HRC) in the last few weeks at a price lower than Japanese, Korean and Indian mills are offering.
Vietnam, which is the largest buyer of HRC in the spot market, is reported to have offers from Chinese mills at $535-540/t CFR for Nov shipments. However, no deals have been heard concluded at the time of reporting.
Similar sentiments were shared by Pakistan-based re-rollers, who claim to have offers from Chinese traders at $535/t CFR Pakistan for November shipments.
“Market sentiments are weak and mills are expecting a better price than the last booking. There are no firm offers from Japanese and Korean mills. However, expectation is around $565/t CFR levels. Surprisingly, Chinese HRC offers for positioned cargoes are at $535-540/t CFR Pakistan for November shipments,” shared a large steel trader based in Pakistan.
Factors driving steel exports from China
1. Falling HRC futures: 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.
Market watchers suggested that the current actual demand for ferrous commodities is not as robust as the market had expected. Moreover, China’s domestic steel demand expectations for Sept-Oct has been excessively positive, bringing down the HRC futures contracts sharply. In a cascading effect, the fall in futures has also brought down China’s export prices.
2. Crude steel output records all-time high in Aug’20: China’s crude steel output hit a new high with 94.85 mn t of crude steel churned out in Aug ’20, up by 2% against the previous high of 93.36 mn t in Jul ’20. The same was up by 9% as against 87.25 in Aug ’19. Thus, higher production and limited trades in the domestic market will leave only one alternative with Chinese mills to export material in overseas markets to avoid a glut of inventory at the mills’ end.
3. Increase in HRC inventories: China’s HRC coil inventory stood at 3.45 mn t from 10th Sept-17th Sept, up by 2% w-o-w and 5% up on m-o-m basis, according to SteelHome. However, CRC inventories stood at 1.40 mn t, down by 1.13% w-o-w and 3% m-o-m due to increased automobile sales. As per CAAM, Chinese automobile sales increased by 11.6% y-o-y in Aug ’20.
Outlook
Traders have started re-stocking activities ahead of the week-long holidays. Thus, we expect Chinese demand to perhaps soften in the domestic market which, in turn, can lead to a fall in export offers in the near term.
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