Since mid-October, the spread between the Chinese domestic price of Q235 4.75mm hot-rolled coil (HRC) and that of SPCC 1.0mm cold-rolled coil (CRC) assessed by Mysteel has been at a near three-year high of over Yuan 900/tonne ($134.5/t). The size of the spread mainly reflects intensified supply pressure of hot coils compared with CRC, while demand for both has been high. The spread may remain wide throughout the rest of this quarter or narrow slightly, market sources believed.
The current price gap is abnormally wide as the normal range is Yuan 500-550/t, Mysteel Global understands. Differing supply dynamics of the two kinds of products are the key reason behind the unusual price spread, market sources agreed.
As of October 29, HRC inventories at steel mills and traders were higher by 839,100 tonnes or 28% on year at 3.83 million tonnes. In comparison, total stocks of CRC had already thinned to the same level as last year back in July, and as of Thursday were at 1.45 million tonnes, almost equal to the 1.42 million tonnes the mills and traders were nursing at end-October last year, according to Mysteel’s survey.
The oversupply is a major source of concern for players in China’s HRC market whose unease is being exacerbated by new additions to HRC capacity. “The increasing capacity is intensifying the competition in China’s HRC market,” a mill official based in East China’s Shandong province commented, noting that a new ESP rolling mill at Fujian Dingsheng Iron & Steel in Southeast China’s Fujian province is already in operation, and three more mills will commission later.
At the end of September as Mysteel Global reported, a 1,780mm hot strip mill at Baosteel Desheng Stainless Steel Co in Fuzhou city, also in Fujian, was commissioned as scheduled, despite the disruptions to the project’s construction at the beginning of the year caused by COVID-19.
“Over October-November, as much as 16 million tonnes/year of new HRC capacity will be released,” the mill source said, adding “probably it will be very hard for HRC prices to increase.”
Another factor driving the price spread wider has been the larger volume of HRC imports compared with those of CRC. Over January-September Mysteel’s tracking shows that China imported 4.8 million tonnes of HRC, which was 179% higher on year. In comparison, the country’s imports of CRC over the same period only increased 34% on year to 2.19 million tonnes.
Compared with prices for Q235 HRC, prices of the SPHC grade hot coils are being supported by the higher prices for CRC, SPHC coils being the feedstock for CRC production, noted a mill source based in North China’s Hebei province.
For instance, tracking by Mysteel has found that SPHC 3.0*1,250mm HRC from a steel mill in Northeast China was sold in Shanghai at Yuan 4,070/t including the 13% VAT on October 30, which was Yuan 20/t lower than two months ago (before the gap exceeded the normal range). Conversely, on the same comparison a deal for Q235 B 4.5*1,500mm HRC from the same mill was transacted in Shanghai at Yuan 3,950/t on October 30, some Yuan 110/t lower.
Yet, demand for these two flat-steel items will remain strong in Q4, thanks to robust demand from the white goods, automobile, truck and container manufacturing industries, according to the Hebei official.
“Our sales to the container makers have been especially good recently, with some orders already scheduled for February-March next year,” she told Mysteel Global.
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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