Chinese HRC export market reacts further to futures spike, rising costs

Ex-China hot rolled coil (HRC) prices have entered a sharp upward phase this week, driven by an explosive rally in China’s steel and raw materials markets amid a surge in investor sentiment and mounting policy expectations. The commodity and stock markets are both climbing rapidly, with HRC futures rising by around $30/mt week on week following confirmation that a new wave of production curbs is likely, particularly in the coke sector.

Specifically, export offers for boron-added SS400 HRC from large Chinese mills have moved to $475-490/mt FOB, with a midpoint at $465/mt FOB, up by $17.5/mt week on week. Meanwhile, smaller mills have been offering their HRC at around $475/mt FOB compared to $455-460/mt FOB last week, though occasional offers from small non-VAT Chinese mills are still voiced at lower levels of around $465/mt FOB, versus $455/mt FOB last week, according to sources. “Export markets were caught off guard by the sudden surge, with leading mills raising their base offers to around $490/mt FOB, while southern mills are expected to follow soon with offers in the $475-480/mt FOB range,” a mill representative told SteelOrbis.

The tradable price for ex-China HRC from traders has settled at $465-475/mt FOB, versus $455-475/mt FOB yesterday and compared to $445-460/mt FOB last week. In particular, according to sources, ex-China Q235 HRC stands at $485-486/mt CFR, against $465/mt CFR last week.

Besides, Chinese offers for Q195 HRC in Turkey have settled at $490-503/mt CFR, up by at least $15/mt week on week. Meanwhile, offers in the Middle East have been voiced at $495-505/mt CFR UAE, up by $10/mt week on week, though, according to sources, a few offers from non-VAT traders are still voiced at $485/mt CFR UAE.

“Raw material prices have now reached eight-month highs, and a new round of coke price hikes is expected shortly. The latest trigger came from news that production cuts would be extended to eight provinces, reinforcing confidence in supply-side tightening and fuelling strong optimism across the market. Technical indicators also suggest further buying interest, as traders and buyers move quickly to secure material before the next round of price increases,” a market insider told SteelOrbis.

In the meantime, average HRC prices in the Chinese domestic market have moved up compared to the previous week amid increasing HRC futures prices. In particular, domestic HRC prices in China have settled at RMB 3,470-3,710/mt ($485-519/mt) ex-warehouse on July 22, with the average price level RMB 147/mt ($21/mt) higher compared to that recorded on July 16, according to SteelOrbis’ data. 

Several government departments in China, including the Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission (NDRC) and the State Administration for Market Regulation have stressed the need to curb excessive competition in the steel industry, exerting a positive impact on market sentiments. The changes in market expectations will result in a rebounding trend in commodity prices, which will also bolster steel prices. HRC futures prices have seen big rises, positively affecting the spot market. It is thought that HRC prices in the Chinese domestic market will likely fluctuate within a limited range in the coming week.

As of July 22, HRC futures at Shanghai Futures Exchange are standing at RMB 3,477/mt ($486/mt), increasing by RMB 224/mt ($31/mt) or 6.9 percent since July 16, while increasing by 2.84 percent compared to the previous trading day, July 21. 

$1 = RMB 7.146