Ex-China HRC hits bottom, unlikely to fall much further as mills’ margins negative

The general sentiment in the Chinese export HRC market has been negative due to weak demand and heavy rains in China, but steel mills have been announcing maintenance works, seeing very minimal to negative margins. As a result, even though fundamentally the outlook is still bearish, market participants do not believe in any additional significant price declines in such a situation, in which mills will prefer to cut allocations given the current rather high raw material prices.

Large Chinese mills have been offering at $495-500/mt FOB, which is below $500-507/mt FOB seen late last week. However, in fact, market sources have been viewing the current prices as “stably low”. “Mills like Angang, Benxi and Yongfeng are at $500/mt FOB. This is what they were ready for last week, even though officially the offer was slightly higher,” a Chinese trader said. Higher-priced offers at $505-510/mt FOB have disappeared due to very limited demand both locally and abroad. “There were not many deals lately as Hormuz is closed again. Deals can be discussed mainly to Fujairah, which is too busy,” another Chinese source said.

Small mills and traders’ price levels have settled at $485-487/mt FOB, down by $2.5/mt from the levels seen late last week. However, a large trading source stated, “In fact, Anfeng is at $486/mt FOB [versus last week’s $487/mt FOB], and I didn’t see anything below $485/mt FOB. Mills are losing money already. Raw material prices are kept high, so maybe [HRC] price can go down $5/mt but not more.”

In Asia, buyers are cautious as they have been waiting for the trend to settle first. Last week, there was talk about 15,000 mt of Chinese Q195 HRC sold to Vietnam at $498-500/mt CFR, which is in line with the previous contracts reported in late June. “I think this is the same tonnage resold. Demand is very limited, so I don’t think this is something new,” a source in Vietnam said. The indicative price for Chinese SS400 is at $510/mt CFR. 

Offer prices for ex-China HRC to Turkey have been stable over the past week at $535-538/mt CFR, as the lower levels seen at $532/mt CFR just yesterday have been withdrawn. “Even if there are non-VAT HRC offers, this is no longer a sustainable flow,” a source in China said.

In the local Chinese market, the previous rainy weather caused by Typhoon Bavi exerted a negative impact on the demand for HRC, weakening the support for prices. It has been easier to close deals for low-priced HRC supplies. However, transaction activities have shrunk compared to previous days. It is thought that HRC prices in the Chinese domestic market will likely be stable or edge down slightly more in the coming week.

Domestic HRC prices in China are at RMB 3,330-3,450/mt ($490-507/mt) ex-warehouse on July 14, with the average price level RMB 13/mt ($1.9/mt) lower compared to that recorded on July 7, according to SteelOrbis’ data. 

As of July 14, HRC futures at Shanghai Futures Exchange are standing at RMB 3,302/mt ($482/mt), increasing by RMB 19/mt ($2.8/mt) or 0.6 percent since July 7, while increasing by 0.67 percent compared to the previous trading day, July 13. 

$1 = RMB 6.799