Ex-China HRC prices soften, non-VAT cargo probes add pressure

Ex-China HRC prices have shown a slight downward bias over the past week, with both mills and traders lowering offer prices in response to weaker domestic HRC prices and declines in HRC futures prices. At the same time, market sentiment has been unsettled by investigations into non-VAT cargoes, adding uncertainty for exporters on pricing and trade flows, and prompting a more cautious near-term outlook.

Specifically, export offers for boron-added SS400 HRC from large Chinese mills have moved to $475-485/mt FOB, with a midpoint at $480/mt FOB, down by $7.5/mt week on week, while offers from smaller mills have been voiced at around $470-480/mt FOB, down by $5-10/mt over the past week. “Offers from big mills such as Shagang and Rizhao have been voiced at $475/mt FOB, while others are offering at $480-485/mt FOB,” a market insider told SteelOrbis.

Meanwhile, the tradable price for ex-China HRC from traders has settled at $470-480/mt FOB, depending on the destination, compared to $480-486/mt FOB last week. In particular, according to sources, while offers for ex-China Q235 HRC in Vietnam have remained relatively stable at $498/mt CFR, Chinese offers to other destinations like those in the Middle East have declined by around $5/mt to $510-515/mt CFR UAE, with a number of sources pushing for $500/mt CFR in their bids.

Furthermore, Chinese Q195 HRC offers to Turkey have settled at $515-517/mt CFR, down by $3/mt on the higher end of the range week on week.

In the meantime, there has been active discussion of 200,000 mt of HRC that was prevented from leaving Fangchenggang port in Guangxi, south China, as the authorities investigate cargoes suspected of evading value-added tax (VAT). The material, 1,900-2,000 mm, was intended for Vietnam, which has not yet imposed antidumping duties on such imports.

“Ahead of the October 1 implementation of the State Administration of Taxation of China (SAT) announcement, which will revise corporate VAT prepayment procedures, market chatter has intensified about possible joint inspections targeting VAT-free exports. While no official notices have been issued for Jingtang, Tianjin or Bayuquan ports, market consensus points to tighter controls being introduced as early as September,” a Chinese trader told SteelOrbis.

“The latest signals of stricter oversight on VAT-exempt steel exports are expected to add uncertainty for exporters, particularly in pricing and trade flows, and may prompt a more cautious approach in the near term,” another trader said.

Meanwhile, domestic HRC prices in China have settled at RMB 3,490-3,700/mt ($490-520/mt) ex-warehouse on August 26, with the average price level RMB 33/mt ($4.6/mt) lower compared to that recorded on August 19, according to SteelOrbis’ data. 

During the given week, HRC futures prices have decreased, weakening the support for prices in the spot market. Most market players hold a wait-and-see stance as regards the future prospects for the HRC market. Coke prices have seen the eighth round of rises, bolstering HRC prices from the production cost side. However, with the traditional peak season for the steel industry approaching, many market insiders still expect domestic HRC prices in China to edge up slightly in the coming weeks.

As of August 26, HRC futures at Shanghai Futures Exchange are standing at RMB 3,367/mt ($473/mt), decreasing by RMB 49/mt ($6.9/mt) or 1.4 percent since August 19, while decreasing by 0.71 percent compared to the previous trading day, August 25.   

 $1 = RMB 7.1188