The long-awaited uptrend has finally arrived in the Chinese steel market in late October instead of usual gains seen starting from early September or even in August. In the billet market, offers have added around $10/mt or so compared to the previous low levels seen in mid-October, but the major question is how sustainable the trend is. SteelOrbis polled market sources.
The SteelOrbis reference price for ex-China billet is settled at $430-440/mt FOB for December shipment today, on October 30, rising by $7.5/mt on average from last week, and coming back to the offer level seen in early October. “We saw deals at below $425/mt FOB, but at the moment no one will give below $435/mt FOB, the wind in the market has changed,” a Chinese trader said, adding that steel production cuts in Hebei province and increase in futures were the major reasons for the recent uptrend.
Steel production cuts vs. inventories
Major cities in Hebei province - Shijiazhuang, Tangshan, Langfang, Hengshui, Handan, Xingtai, Baoding, and Cangzhou – started steel production and transportation restrictions on October 27 due to a level II emergency response to alleviate pollution, under which sintering activities will be reduced by 30 percent. This is expected to reduce crude steel production by around 400,000-450,000 mt during 4.5 days. This move obviously supported sentiments over October 27-29, but having a deeper look, it is obvious that the production was rather strong earlier in October. Daily crude steel output at CISA members was at 2.023 million mt during October 1-20, while in September it was at 2.016 million mt on average.
Commenting on steel production in China, a few Chinese sources said that they assess production at rather high levels compared to the latest levels of consumption in the country. “After the holidays, we saw the decent move in HRC [trading locally], rebar is worse,” one of traders said. It is worth to mention that September crude steel production in China was the lowest in 21 months at 73.49 million mt, but it failed to boost steel prices in China.
At the same time, inventories of steel in China are high and showing that demand is not that supportive, and mills are in a difficult position, especially in October. In particular, as of October 20, the finished steel inventories of large and medium-sized steel enterprises in China amounted to 16.58 million mt, which is 8.4 percent above the level seen at the same period in September and 5.8 percent higher than mid-August.
China-US tensions ease
On October 30, President of China Xi Jinping held a meeting with US president Trump at Busan, which will exert a positive impact on market sentiments. The US president agreed to cut overall tariffs on Chinese goods by 10 percent amid the progress in negotiations for soybean imports to China, rare earths trading and fentanyl issues.
Even though it has no direct impact on the iron and steel industry of China, sentiments have been boosted obviously. Spot prices in China rose, following futures increases.
Rebar futures at Shanghai Futures Exchange have gained 1.54 percent, 0.49 percent and 1 percent on Monday, Tuesday and Wednesday respectively, but eased slightly by 0.38 percent on Thursday.
Weak demand – major factor against sustainability of uptrend
The general opinion in the market is that the latest uptrend will be short-lived, at least until more supportive factors emerge. “Steel prices from China seem to have increased by $5/mt this week. But everybody knows demand is very poor for China's long products and winter is coming very soon,” a SE Asian buyer said.
Chinese traders, going short earlier in October, stopped giving low prices in almost all major destinations. “Turkish and Middle Eastern buyers have offers calculated from the current FOB prices, which are close to $440/mt FOB nowadays. There is no need to offer in short when futures are up,” a Singapore-based source commented.
Competition
Though Chinese billet exporters have been among the major global suppliers this year with China’s semi-finished steel exports amounting 10.7297 million mt in the first nine months, competition with other sellers persist. Russia has been among the major rival. In Turkey, the latest delas for Russian billets were priced at $20/mt below the latest offers from China, which are at $475-480/mt CFR this week. Also, in Asia, Chinese billet is around $5-10/mt more expensive than Russian.
Though Iranian billet exports have been slow in recent months, after rises in Chinese offers, sales may accelerate.
“Some sellers, like Japan or SE Asia may conclude sales instead of China, but I think Chinese billets will still be the major source in general as supply potential is bigger in China and supply-demand issue will remain,” a Chinese selling source said.
Indonesian billet producer announced its offers for January shipment billet at $443/mt FOB as of October 30, up from $435/mt FOB last week.