Nervous steel bringing markets to a temporary pause

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21 November 2016

Chinese steel mills exhibited a nervous temperament last week (14-18 Nov) with no clear signs of market movement in the wake of coming winters. Winters in far east bring a near halt to construction and related activities sealing a major share of steel usage.

At the same time, domestic iron ore concentrate production slows down shifting the steel mills appetite towards imported iron ore. The shift was seen last week but owing to the very high prices of the raw material there was partial buying through the week. Mills are heard to be sitting with adequate inventories which also put a lid on the expected heavy buying last week. Practically, this theory was enacted in the actual markets as spot iron ore prices rushed to near $80 per tonne early last week and then cooled down to $72.70 per tonne towards mid-week, thereafter stabilizing at that level at the weekend.

It is imperative to highlight that China steel prices remained silent through the entire last week. The anxiety on the direction of future movement of steel prices held the prices unchanged through the whole of last week. HR coil steel price originating from China are being offered at $465-470 per tonne and billets at $370-375 per tonne FOB China. Chinese rebar was heard at $380-385 per tonne FOB China.

The same sentiment seeped into coking coal markets where traders were seen waiting to check the market direction for steel. Price of coking coal was stable at $310 per tonne through the week with traders willing to supply in the range of $308-312 per tonne but buyers and mills unwilling to step up. There were not many traders taking positions due to the similar unstable outlook.

Met coke prices were also unchanged in the last week at nearly $340-344 per tonne CFR China. Indian importers were also seen stepping on the sidelines at $350 per tonne CFR Paradip/Vizag.

Two more events took place last week and were in focus through the week keeping the markets in thinking mode. First, Chinese authorities upped trading fees and margin requirements to cool down the credit-fueled speculation in iron ore, met coal and rebar. Second, China’s National Development and Reform Commission said on Thursday that all mines could produce for 330 days each year, after last week extending a production band of 276-330 days through the end of March.

Further, the impact of iron ore sunk into the Turkish scrap markets were scrap dealers and traders kept themselves far away from active trading. They have started to fear of the scrap prices sinking sharply if iron ore retreats in the coming week. Current transacted price of HMS (80:20) scrap was registered at $271 per tonne CFR Turkey. Towards the weekend offers in the range of $265-272 per tonne did not attain any interest.

Thermal coal which is likely to be the next commodity to be impacted after Chinese ban relaxation was currently seen at $81 per tonne FOB from South Africa. Though market analysts believe that Chinese relaxation may not impact the price of other global suppliers but buying is at a temporary pause to inspect the next move in China.