Chinese steel market prices continued to show mixed trends with the government imposing more restrictions on production. Iron ore and domestic hot-rolled coil (HRC) prices fell on poor demand, while rebar prices picked up on improved demand with weather conditions turning favourable.
1. Spot iron ore prices fall further: Chinese spot iron ore fines Fe 62% prices opened at $122.6/t CNF China for the week and decreased to $100.8/t, CNF China towards the weekend. Chinese mills usually start buying more iron ore two to three weeks ahead of the October Golden Week holidays. However, demand does not seem to be at similar levels as that of last year. Iron ore supplies in the market are on the higher side with numerous Oct’21 loading cargoes.
Although Chinese mills have low inventory levels, procurement has been on the lower side due to uncertainties around steel production curbs. A potential downside to prices is likely in Q4.
Production curbs in 2021 have hammered demand for iron ore, with stricter regulations taking place at Chinese steel mills in recent months. With increased crude steel output in the first seven months of the year (+8% y-o-y), China has clamped down on steel production for the rest of the year. Crude steel output in August already fell 13% y-o-y, data from the National Bureau of Statistics showed. As a result, demand for lumps, as well as fines and pellets, has been falling after touching the highs in mid-July.
Mills are reselling contracted cargoes to lower their iron ore inventories in light of the production curbs. Cargoes of both fines and lumps are heard to be sold in the secondary market at discounted levels.
As per data compiled by SteelHome consultancy, iron ore inventory at major Chinese ports was recorded at 130.1 mn t this week, down 400,000 t w-o-w.
a) Spot pellet premiums up w-o-w: Spot pellet premiums for Fe 65% grade pellets were assessed at $53.25/t as against $39.5/t assessed last week.
Demand for pellets at portside is still decent as high coke prices support the preference for pellets over lumps. High coke prices in China may create an upside for low-alumina pellets in the market, as pellets are an alternative to iron ore lumps.
b) Spot lump premiums under pressure: Spot lump premiums were assessed at $0.0250/dmtu as against $0.063/dmtu last week. The potential sintering restrictions in Tangshan might not support lump premiums as coke prices remain high.
2. Coking coal prices hit a 10-year high on supply concerns: Seaborne hard coking coal (HCC) prices continued to surge this week to reach its 10-year high level, on active buying in ex-Chinese Asian markets amidst limited spot availability. China’s domestic coking coal market witnessed a strong rally as ongoing environmental and safety regulations limited production, while demand remained robust on healthy steel margins.
The latest prices for the premium HCC grade are assessed at around $379.00/t FOB Australia, which was $336.00/t FOB a week back.
3. China’s domestic billet prices inch up towards weekend: Steel billet prices in China’s Tangshan slightly increased by RMB 10/t ($1/t) w-o-w. Domestic billet prices stood at RMB 5,210/t ($806/t), inclusive of 13% VAT. According to data maintained with SteelMint, the Chinese SHFE rebar futures contract for Jan’22 delivery closed yesterday, 17 Sep’21, at RMB 5,478/t ($849/t), decreasing sharply by RMB 162/t ($25/t) w-o-w.
4. HRC export offers unchanged w-o-w: The export offers from Chinese mills continued to linger around $970-1,000/t FOB China. Low preference for Chinese material has been there over potential export tax levy and competitive offers from other exporting countries like India and Russia. Meanwhile, high marine freight rates and further announcement of production cuts over reducing power consumption kept away mills from lowering their offers.
On the other hand, domestic HRC prices came under pressure, declining w-o-w by about RMB 120-140/t to RMB 5,730-5,780/t (Eastern China as compared with RMB 5,850-5,920/t (Eastern China). Demand in the spot market slowed down with the news of rising Covid-19 cases in the south-eastern provinces during the week.
5. Domestic rebar prices pick up on improved demand: Domestic market prices for rebar picked up by RMB 40-50/t this week, backed by the upheaval in demand over favourable weather conditions and expectation of a decline in production in the near term. The current price levels stand around RMB 5,300-5,340/t (Northern China) as against RMB 5,250-5,280/t (Northern China) a week back.
5. Shagang Jiangsu cuts scrap prices: China’s largest EAF steelmaker, Shagang Jiangsu Steel, announced the first reduction in scrap procurement prices in Sept’21 over decreased scrap utilisations because of the production restrictions. The steelmaker has cut scrap purchase prices by RMB 70/t ($11) for all grades from 17 Sept’21. Post-revision, the price of HMS (6-10 mm) stands at RMB 3,710/t ($575), including 13% VAT, delivered to headquarters.
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