FOCUS: China’s winter steel production cuts could boost Asian prices

“There is some bullishness in the market now that the promised production cuts by Chinese steel mills have been implemented. Buyers in some segments of the Asian steel market have either increased their bid levels or are more willing to discuss price increases,” a trader based in Northeast Asia told Metal Bulletin.

China, on November 15, began restricting production rates in major steel-producing regions in the north in a bid to control pollution and lower PM2.5 particulate matter levels during the winter heating season, which lasts until mid-March.

These restrictions are on top of capacity cuts carried out throughout the year in various parts of the country, including its key steel production base of Hebei province in north China. The province exceeded its targeted capacity cuts for this year, according to a recently released document.

Prices for both long and flat steel have remained high in recent weeks in Asia, especially in China, where Chinese producers are maintaining their focus on the more lucrative domestic market and reducing export volumes.

China’s export prices for hot-rolled coil appear to have stabilized – and might be on the rise again – following a correction in late October.

Metal Bulletin’s fob China HRC Index has been less volatile so far this month, remaining at a range of $544-551 per tonne fob.

“China’s export price movement tracks the domestic market closely. With the home market rebounding this month amid the anticipation of tightening supply due to the winter production restrictions, export prices steadied at the current high level,” a Shanghai-based export trader said.

“We expect the HRC index to at least remain stable at the recent high if not move up further given the continued impact of the restrictions on the market,” he said.

He added that the index could lose its upward momentum if domestic demand turned out to be lower than expected, which would lead mills to channel their products to the export market.

Metal Bulletin’s fob China Rebar Index experienced a similar trend. The index rose to a high of $540 per tonne fob on November 21 from a month-to-date low of $520.35 per tonne fob on November 2.

In China’s domestic market, rebar prices in east China rose from November 1’s 3,890-3,930 yuan ($586-592) per tonne to 4,100-4,140 yuan per tonne on November 14 before retreating slightly. They then went on to rise as high as 4,200-4,250 yuan per tonne on November 21.

Some participants attributed the price increases to the production cuts in north China. They expect prices to rise even further in the next few weeks.

This improvement in sentiment is expected to support the steel market in Southeast Asia, where prices have largely languished for several weeks now.

The HRC segment is seeing some life, with prices in key import market Vietnam experiencing an uptick as buying interest improved with end-users seeking to secure sufficient volumes ahead of a possible supply shortage due to China’s production cuts. This is done in preparation of mills restarting after the Tet holiday in February.

In Singapore, where buying activity has been thin due to major buyers taking their time with purchases amid high inventory levels and limited downstream, prices have largely held up of late. Turkey and India-origin cargoes were being offered at stable levels of $515-530 per tonne cfr Singapore due to an absence of China-origin cargoes in the spot market.

In the semi-finished steel segment, buying sentiment appears to have improved, traders said.

“Buyers are willing to bid at stable levels ever since news broke about China implementing its steel production cuts. While prices have not increased significantly, they have stabilized. They could also start climbing out of price troughs,” a trader based in Northeast Asia said.

Billet and slab prices were largely subdued, at $480-490 per tonne cfr Southeast Asia over the past week, but interest appears to be growing among buyers in the region in light of the possible drop in supply from China.

Long steel producers said downstream demand for construction materials such as rebar and wire rod would likely pick up in the December-January period due to the start of the dry season in the first quarter of 2018 in parts of Southeast Asia. This is typically when the building and construction season starts for these parts of the region.

Rising prices for ferrous scrap in the key markets of Taiwan and Turkey are also expected to provide additional support to spot billet and rebar prices.

Jessica Zong and Gladdy Chu in Shanghai contributed to this report.