The Chinese steel market exhibited mixed sentiments this week on possible increase in restrictions on both steel production and utilisation of road transport ahead of the Winter Olympics and Paralympics in Feb-Mar’22.
Stricter measures from the Beijing government for production cuts impacted domestic iron ore and HRC prices. On the other hand, domestic rebar prices moved up along with billets, although the major construction and logistical activities were hindered by adverse weather conditions.
China’s key steel statistics for July’21
- China’s finished steel exports fell 12% m-o-m to 6.45 mn t.
- Finished steel imports fell 16% m-o-m to 1.05 mn t.
- Iron ore imports fell marginally by 1% m-o-m to 88.51 mn t.
Product-wise sentiments
1. China spot iron ore prices down for the week: Chinese spot iron ore fines Fe 62% prices opened at $162.2/t CNF China for the week and decreased to $160.85/t, CNF China towards the weekend. The prices slipped, pressured by the bearish demand outlook in China. Steel mills were also cautious in their procurement decisions with production curbs underway. Instead of pursuing high Fe and low alumina cargoes, mills preferred to use more cost-effective cargoes, for example, those with a large discount against the 62(%) index but with comparatively satisfactory specifications.
China will shift its focus to cutting down actual output, a major difference from the past few years when the core task was to eliminate excess and obsolete steel capacities, Wu Xianfeng, an official from the Ministry of Ecology and Environment (MEE), said on the occasion of the China Iron and Steel Association’s (CISA) interim meeting in Shanghai on 29 Jul’21. As per data compiled by SteelHome consultancy, iron ore inventory at major Chinese ports were recorded at 127.2 mn t as against at 128.05 mn t assessed a week ago.
a) Spot pellet premium down w-o-w: The spot pellet premium for Fe 65% grade pellets was assessed at $45.5/t as against $49.05/t assessed last week. The iron ore pellets market continued to fall on subdued demand. Although steel margins remained healthy, production curbs prompted mills to prioritise cost saving over productivity. Mills were heard targeting lower iron content in their sintering mix and reducing lump and pellet usage in blast furnaces to save cost.
The strong pressure from the Chinese government to reduce steel output in 2021 could result in steel mills’ production decreasing in Aug’21. To reduce crude steel output, Chinese mills will be lowering the Fe level of the blending mix that goes into blast furnaces and to reduce the Fe level, usage of premium products, especially iron ore lumps and pellets, is likely to fall. As per data compiled by SteelHome consultancy, pellet inventory at major Chinese ports was recorded at 3.6 mn t, as against 3.8 mn t assessed last week.
b) Spot lump premium down w-o-w: The spot lump premium was at $0.2550/dmtu as against $0.4000/dmtu last week. Market participants expected lump premiums to drop further amid falling demand, as in-house sinter is sufficient for mills at the moment.
2. Domestic billet prices up RMB 30/t w-o-w: Steel billet prices in China’s Tangshan rose by RMB 30/t ($5/t) w-o-w. Domestic billet prices stood at RMB 5,110/t ($789/t), inclusive of 13% VAT. According to data maintained with SteelMint, the Chinese rebar futures contract for Jan’22 delivery closed at RMB 5,482/t ($846/t).
3. HRC export offers fall by $10/t w-o-w: Chinese mills are offering HRCs for exports at $1,000-1,030/t FoB China, down $10/t in comparison with $1,000-1,040/t FoB a week ago. Market participants have adopted a wait-and-watch mode because of the continued pressure built up on possible imposition of an export tax duty of about 10-15% or higher on HRCs. This has triggered fear in the minds of sellers, and especially buyers who are to shoulder the losses if the tax is levied.
In the domestic market, HRC prices fell by RMB 20-40/t w-o-w due to seasonally weak demand and a spike in Covid cases. Also, in view of Winter Olympics and Paralympics in Feb-Mar’22, the major steelmaking hub, Tangshan, plans to extend its restrictions on blast furnace, sintering and pelletisation activities along with road logistics until Mar’22, to ensure good air quality. The price range stands at RMB 5,750-5,780/t (eastern China) as against RMB 5,790-5,800/t (eastern China).
In addition to the above, the leading Chinese steel producer, Baoshan Iron and Steel (Baosteel), rolled over prices for the third consecutive month for most of its steel products for Sept’21 shipments.
4. Domestic rebar prices up w-o-w: The possibilities of further increase in production restrictions in several provinces provided some support to the domestic rebar prices. However, the demand was severely impacted by disruptions caused by adverse weather conditions.
This resulted in a spike in rebar prices by RMB 60-70/t, despite adverse weather and dull demand. The current week’s prices stand at RMB 5,170-5,210/t (northern China) as against RMB 5,100-5,150 (northern China) a week ago. However, the prices in eastern-China remain range-bound at RMB 5,200-5,230/t in line with the previous week’s RMB 5,200-5,240/t.
5. Shagang Steel cuts rebar prices by RMB 200/t ($31): China’s Shagang Steel has revised its rebar prices while keeping wire rod and coiled rebar prices unchanged for mid-Aug’21 sales.
The current prices for rebar (16-25mm) stand at RMB 5,500/t ($849), for wire rods (6.5mm) at RMB 5,860/t ($907/t) while coiled rebar (8-10mm) prices are at RMB 5,850/t ($905/t), effective from 11 Aug’21. All prices are ex-mill, including taxes.
6. Shagang announces 2nd scrap procurement price cut for Aug’21: China’s largest electric arc furnace (EAF) steelmaker, the Jiangsu Shagang Group, has announced the second drop in its scrap purchase prices for Aug’21, sources informed SteelMint. The steel producer has cut scrap purchase prices by up to RMB 50/t ($8/t) across all grades. The current prices for HMS (6-10 mm) stand at RMB 3,750/t ($579/t), inclusive of 13% VAT, delivered to headquarters.
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