The Chinese domestic finished and semi-finished steel prices soared this week tracking the gains in the futures market. Along with this, an expectation of tight supplies due to the production cuts in the second half also fuelled restocking demand in the market.
Product-wise sentiments-
1. China spot iron ore prices- Chinese spot iron ore prices opened at $221.4/t CNF China for the week and increased to 222.85/t, CNF China towards mid-week. However, the prices fell towards weekend to $216.50/t, CNF China. Iron ore prices slumped on expectations of reduced demand from Chinese mills following production curbs. Some traders in China are expecting sintering cuts to continue throughout Jul’21 which, in turn, are expected to weaken demand for iron ore further.
Few sources shared that the switch towards a lower Fe blending mix is underway to manage costs and lower production. However, high domestic coke prices are limiting any upside for fines with high impurities.
As per data compiled by SteelHome consultancy, iron ore inventory at major Chinese ports was recorded at 127.3 mn t as against at 124.45 mn t assessed a week ago.
a) Spot pellet premium weighed down by poor buying interest- Spot pellet premiums for Fe 65% grade pellets were assessed at $68.5/t as against $ 76.65/t last week. Seaborne pellet premiums were pressured by a lack of liquidity and buying interest from Chinese end-users due to poor steel margins. Steel production and iron ore fines procurement were seen recovering in the week after the centennial celebrations in China, but demand for pellets lagged behind as mills were hesitant in procuring premium direct feed material at current weak steel margins.
As per data compiled by SteelHome consultancy, pellet inventory at major Chinese ports was recorded at 4.1 mn t, against 3.9 mn t last week.
b) Cost issues push spot lump premiums down- Spot lump premium were at $0.6400/dmtu as against $0.7300/dmtu last week.
Seaborne lump premiums dropped further amid lower mainstream lump usage among end-users to manage costs. The emission controls in the second half of the year are expected to hamper overall iron ore demand but may smoothen the drop in lump premiums as direct feeds are usually favoured under strict environmental controls.
Lump premiums fell sharply on rising supply and reduced demand due to end-users reselling contract volumes. However, a trade source expected ex-China demand to cushion the fall in lump premiums in the near term.
2. Australian coking coal prices continue to rise on limited spot availability- Australian premium low-volatile (PLV) hard coking coal (HCC) prices continued to increase this week, amidst concerns over limited spot availability coupled with sustained demand in the China markets.
Moreover, suspension of Australia-based Teck’s railway services fuelled bullish sentiments in the spot market, while Chinese trading activities and offers were limited as market participants waited on the sidelines.
Latest prices for the premium HCC grade are assessed at around $206/t FoB Australia as compared to $199/t FoB in the previous week.
3. Domestic billet prices up on rising rebar futures- According to data maintained with SteelMint, the Shanghai Futures Exchange (SHFE) rebar futures Oct’21 contracts on 9 Jul closed at RMB 5,428/t ($837/t), up d-o-d RMB 35/t ($5.5/t). On a weekly basis, the futures increased by around RMB 304/t ($47/t). Tracking the hike in futures, domestic billet prices in China stood at RMB 5,020/t ($774/t) in Tangshan, including 13% VAT, climbing by RMB 110/t ($17) on a w-o-w basis.
4. Chinese buyers quiet on Japanese scrap bookings- Chinese buyers have continued to bid low for imported Japanese HRS 101 grade scrap. Thus, the bid-offer disparity has kept trading muted. Bids are hovering around $520/t CFR levels against the previous offers of $570-600/t CFR. Chinese mills are showing more interest in billets, which are now available at $675-685/t CFR levels.
5. HRC export offers tumble over weak overseas demand- The Chinese HRC export offers witnessed a correction of around $20/t this week.
The current week’s assessed export offers stood at around $920-940/t FoB China against $940-945/t FoB a week ago.
There is limited buying interest from South East Asian countries due to the dual impact of the monsoon’s seasonal lull and Covid-19 concerns, which have weighed on export offers.
On the other hand, domestic market prices spiked by RMB 270-290/t to RMB 5,700-5,770/t (Eastern China) against the previous week. Leading factors were:
a) Gains in the futures market towards the end of the week.
b) Indications of production curbs in the second half of the year sent traders rushing to restock.
However, end-user demand continued to remain low due to the monsoon lull.
6. Rebar prices spike on production curb indications- Domestic rebar prices have soared by RMB 180/t during the week, gaining strength from the futures market and in expectation of tight supplies due to production restrictions.
The current week’s assessed prices stand at around RMB 4,690-5,000/t (Northern China) as against the previous week.
However, demand remained very low because of the adverse weather conditions restricting both logistics and construction work in various provinces of the country.
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