Chinese steel futures, both rebar and HRCs, have been rising over a fortnight or so. HRC futures rose by RMB 615/tonne (t) and rebar by RMB 554/t, which translate into more than $90/t for HRCs and $85/t for rebar.
Impact on Indian steel exports
But, more importantly, is this uptrend going to impact Indian steel export prices and prospects?
SteelMint notes that demand for long products or billets has not been very good for the last one month and that no major deals were heard from India.
But, interestingly, close on the heels of the rising Chinese futures, some buying interest has returned to the market.
Earlier, price expectations from the Chinese traders and importers hovered around $650/tonne-levels CFR. But, of late, these have increased to $680-690/t CFR, although no deals have been struck yet. But, importantly, interest has returned to the market in longs and, at these prices, some deals may be concluded, it is expected.
For instance, buying interest has improved for Indian billets in particular. Recently, buyers participated in tenders floated by state-owned and private mills. The interest stems from the fact that rising futures will pull up spot prices which, in turn, will help Indian exporters, not immediately perhaps but at least in Aug-Sept, by when we could see some amount of trade taking place.
Of course, July will be a sluggish month for Indian mills and exports will be low. But this is all the more reason why mills would be scouting for deals for Aug-Sept deliveries. “Some traction could be seen in Aug and Sept if Chinese futures prices continue to sustain at these levels, and which should, because the Chinese government is looking very strict on controlling crude steel production,” says a source.
High freights a bother?
The only bother, however, will be the high freight and quarantine issues, which still challenge traders. For instance, the freight from India to China is at $60-70/t. That apart, $20-25/t extra are being incurred due to quarantine at Chinese ports. Therefore, around $80-90/t extra are getting added to the FoB prices.
But, since futures will push up spot prices, despite higher freight, there is scope for deals to conclude at around $600/t CFR levels. Current Indian export prices are around $580-590/t FoB levels but not many mills are keen to conclude at these prices, their expectations being $600-605/t.
Why are Chinese futures rising?
The futures are intrinsically linked to China’s policy of crude steel production curbs. The country is desperate to keep its production in CY’21 at last calendar’s levels of 1.065 billion tonnes. Furnaces are being forced to operate at 70% capacity. Mills are opting for price hikes to make up for output cuts.
This may augur well for billets exports from India. It was heard that billet import deals into China from various origin are being struck at $660-665/t CFR. Large traders are buying at these levels to sell in the futures market, pumping up futures indices.
As a consequence, billet imports into China increased by 29% y-o-y to 3.76 million tonnes (mn t) in Jan-May’21 compared to 2.92 mn t in the same period in CY’20, SteelMint’s customs data reveals. China sought imports of semi-finished to feed domestic demand amidst local supply crunch.
Prices as on 8:55 IST, 08 Jul. d-o-d changes indicated against closing price of 07 July
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