Hot-rolled coil prices across China’s domestic market moved higher on Wednesday June 30, supported by futures prices that are underpinned by expectations of lower production for the rest of this year.
Domestic
Eastern China (Shanghai): 5,420-5,460 yuan ($839-845) per tonne, up by 10-30 yuan per tonne from 5,390-5,450 yuan.
The most-traded HRC contract on the Shanghai Futures Exchange resumed its rebound on Wednesday, jumping more than 100 yuan or 2% from the prior day. Market sentiment in the futures market is supported by growing expectations of production cuts in the second half of the year in China.
Steel mills in the eastern province of Anhui have been ordered to keep crude steel production this year no higher than in 2020, sources said. Authorities in the neighboring province, Jiangsu, has also reportedly imposed a similar requirement on steelmakers, but there has been no official announcement of this yet.
Mills will have to cut their crude steel production for the rest of this year to meet the requirement because output in the first half of the year was higher than over the same period of last year.
These orders by the Chinese authorities come in line with Beijing’s pledge to reach peak emissions by 2030 and carbon neutrality by 2060.
Continued efforts to cut emissions are lending support to steel prices, but that conflicts with Beijing’s recent attempt to stabilize the commodity market, which paints an uncertain outlook for steel prices, a Hangzhou-based trader said.
Trading activity in the HRC spot market picked up after prices climbed up, sources said.
Export
Fastmarkets’ steel hot-rolled coil index export, fob main port China: $840.92 per tonne, down by $21.32 per tonne.
The export price has continued to fall, dragged down by weaker demand from Southeast Asia, where factory activities have slowed or halted due to the surge of Covid-19 cases, and shaken by cheap cargoes from Russian sellers.
Mills and trading houses lowered their offers to as low as $865 per tonne cfr Vietnam ($835-840 per tonne fob China).
A major mill in northern China sold about 12,000 tonnes of ss400-grade HRC to Vietnam for shipment in late August at $860 cfr ($830-835 fob China), sources told Fastmarkets.
A Shanghai-based trader’s estimate of achievable prices stood at as high as $860-880 fob China on expectations of stable demand from Africa and South America, while the Hangzhou-based trader cited signs of weakness in demand from South America and estimated that $850 fob China is workable.
Mills and trading houses have also softened their stance on the possible Chinese export tax. Some have stated a willingness to shoulder the tax, even though both sellers and buyers see a low likelihood of the imposition of duties on HRC exports in the near term.
Market chatter
“I do not expect great impact from cheap Russian cargoes on HRC export prices. There might be some impact on nearby markets such as Vietnam, but the African and South American markets are unlikely to be affected,” the Shanghai-based trader said.
As for the domestic market, he sees “poor demand,” which “limits the upside potential for steel prices.”
Data from China’s National Bureau of Statistics released on Wednesday morning shows that China’s factory activity continued to grow in June, albeit at a slower pace, with the manufacturing purchasing managers’ index (PMI) easing to 50.9, the lowest in four months, from 51.0 in May.
Production, new orders, new export orders for the ferrous metal smelting and rolling processing sector all contracted in June, however.
The sub-indices for production and new orders for the automotive sector, which is a key downstream user of HRC, were in contractionary territory for a second straight month due to the continued semiconductor shortage and other factors.
Shanghai Futures Exchange
The most-traded October HRC contract ended at 5,428 yuan per tonne on Wednesday, the highest close in two weeks. It gained 113 yuan or 2.13% from Tuesday’s close.
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