Chinese flat markets awaiting export rebate policy

SteelOrbis Shanghai Chinese exporters have filled their order books but export price levels for hot and cold rolled products remain unchanged due to weak trade volume in local Chinese markets. Recent export offers made by Chinese steelmakers and traders retain their previous levels. Offers for hot rolled coils have remained at $470-490/mt FOB for nearly two weeks. The export tax rebate reduction issue is still the focus point for Chinese exporters. Sources reported that Wuhan Steel's export order for May shipments totaled 500,000 metric tons, the 80,000 metric tons of which is hot rolled coils. Shagang's April export volume is 50,000 metric tons, and that of May is expected to remain at the same level. Shagang has stopped accepting orders for May and began taking orders for June shipments. Tangshan Steel signed export contracts for 60,000 metric tons of HR products in total, and about 30,000 metric tons of export has been fulfilled in April so far. The remaining volume may be postponed to May shipments. The domestic supply of hot rolled products is expected to remain tight due to exports. Nevertheless, the demand is still short and the purchases in the domestic markets began dropping when 5.75 mm hot rolled coil prices increased to RMB 3,800/mt ($474). The bearish transaction volume prevents prices from seeing RMB 3,900/mt ($487) level. Yet, the market prices are not expected to fall below RMB 3,800/mt due to steelmakers recent ex-factory price hikes. During last week, leading mills for the domestic market such as Meishan Steel and Lianyuan Steel announced new price lists for hot rolled products, but the increase range was smaller than the previous announcements. Market sources reported that some steel mills required traders to place orders for both May and June, showing steelmakers' cautious attitudes. The recent price hikes of steelmakers were due to favorable export market. But when the government reduces the tax rebate, the mills will have to reduce their ex-factory prices in order to compete with the export prices of other countries. Accordingly, the prices in the domestic market will also decrease. Domestic consumers are waiting for that decrease to speed up their hot and cold rolled product purchases. Meanwhile, the production of hot rolled products including medium and wide coil, hot rolled thin and wide coil and sheet increased 473,300 metric tons month on month and 23.7 percent year on year to 5.0947 million metric tons in March. The output of cold rolled products, including CR thin and wide coil/sheet in March increased 337,300 metric tons month on month and 47.9 percent year on year to 1.9586 million metric tons. Both export prices and local prices are expected to retain their current levels with slight fluctuations this week. Meanwhile, the approaching one week long May Day and the anticipated export tax rebate reduction may influence the market in the following weeks.