China’s steel buying spree may be short-lived

The world's largest steel producer is being closely watched for any signs that its exports may tick up. But imports have been more in focus with the appearance of spot import sales of billet and flat steel into China since last year. China's March steel imports jumped by 26.3pc to 1.14mn t, and customs data for April-May are expected to show further gains from recent spot purchases.

China's recovery from the Covid-19 outbreak while the rest of the world struggles to control the pandemic has kept its steel prices above seaborne levels, opening the arbitrage window so wide that some Chinese trading firms have abandoned export trade to focus on imports.

Argus has reported a significant volume of billet, slab, plate, hot-rolled coil (HRC) and cold-rolled coil (CRC) imports from Russia, Ukraine, India, Brazil, South Korea and Japan to China since late March.

More than 200,000t of spot sales of HRC have been sold into China since late March.

Russian, Indian and South Korean mills kicked off the trade, selling more than 100,000t HRC to China at $375-385/t cfr China from late March to early April. The total HRC import cost will be 3,080 yuan/t ($435/t) based on the lowest deal price of $375/t cfr including a 13pc value-added tax (VAT) and 3pc import tax. The cargoes will ship to China in late April, May and June.

The imports are competing with domestic supply in local markets. A Chinese trader offered imported Indian thin coils with 2-2.75mm thickness at Yn3,370/t into east China earlier this week compared with Chinese coils with the same grade at Yn3,400-3,410/t.

A South Korean mill has sold a May shipment of HRC as low as $385/t cfr China. Japanese mills have also offered aggressively into China, but at premiums too high for significant deals to be concluded.

Chinese also bought more than 100,000t of steel plate from South Korea at $420/t cfr compared with Chinese plate at workable levels of $455/t fob in late March.

But lower-priced spot offers have disappeared from Russia and India, and the fob China HRC index has fallen by more than $50/t to around $400/t fob since mid-March to narrow the export-import price gap. Shanghai HRC prices in $/t terms also fell by around $50/t over the same period from around $500/t to under $450/t, before the latest rebound to near $470/t ex-warehouse equivalent.

Import deal volumes have slowed this week, with wider bid-ask spreads. Japanese and South Korean offers have fallen to $400/t cfr but are only inducing bids of $385-390/t cfr this week.

But imports procured earlier at lower price levels could weigh on domestic markets in May. "Those imported HRC is going to weigh on the domestic market in May, and we are worried about shrinking profit margins because of the competition," a north China HRC producer said.

The window for billet imports reopened in mid-March as China's rebar prices held firm while the rest of the world slumped with the spread of the coronavirus. Shanghai rebar ex-warehouse prices increased by Yn150/t from mid-February to mid-March. The fob Black Sea billet price fell by $47.50/t from 21 February to $342.50/t on 30 March. The $70/t swing in price differences led more Chinese traders to target overseas rebar and billet.

Three 50,000t cargoes of billet were sold at $365-395/t cfr China in the second half of March from India, Ukraine and Russia for April-May shipment. The total purchasing cost will be Yn2,965/t based on the lowest deal price of $365/t cfr including a 13pc VAT and 2pc import tax, giving buyers a profit margin of Yn140/t against the domestic billet ex-works price of Yn3,100-3,120/t at the time. The profit margin fell to Yn100/t based on the billet ex-works price of Yn3,070/t today.

China's first-quarter steel imports fell by 9.7pc to 3.18mn t because of the outbreak, but they had started to rise in late 2019. December imports at 1.48mn t were the highest since 2015.

China's steel exports surged to a 19-month high of 6.48mn t in March, but the pace was still well short of 2015 record exports of 110mn t.