New Pieces to the Chinese Steel Puzzle

On the world export market, WSD expects the hot-rolled band (HRB) price for Tier I mills to surge a further $100+ per tonne in the next two months to perhaps $650-700 per metric tonne, FOB the port of export, from about $550 per tonne at present and the low in early February at about $400 per tonne. (Note: The Steelbenchmarker™ HRB price for April 24 was $540 per tonne.)

Developments that may further push up the price include: a) a sizable increase in steel scrap prices (which have lagged to date the rise in steel sheet prices); b) the announcement by the Chinese government probably in May that it is seeking to restrain exports by reducing the export tax credit (perhaps to 8% from 11% at present); c) an ongoing steel buyers’ panic (i.e., they want inventory); d) rising global steel demand; and e) extended order backlogs for the steel mills. In China, the price of hot-rolled band may not participate fully in the price rally because of buyers’ worry (which we think is correct) that oversupply in the home market is not far away due to the combination of export constraints and higher domestic capacity. The latest relative strength indices provided to WSD by Minmetals Steel of China shows that hot-rolled band is only the fourth strongest product out of nine, with the three other sheet products the weakest of all.

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