Will Chinese Steel Prices Correct in Coming Weeks?

Ore stocks in Chinese ports are again at historic levels 107 Million MT, all the Small to Medium Scrap based steel mills are closed now. Integrated mills are running at 60-70 percent capacity and basically giving away their normal SE Asian market shares to new players.

For an example, Turkey has sold 40K of Debars (rebar) to Hong Kong at USD420/mt CNF FO and 12mm up to 40mm diameter Gr. 500 Debars. Singapore has also purchased Turkish Debars at a slightly lower level due to freight, but 50K and same quality and sizes. All March shipments. These were concluded mid last week and if you want to buy the same for April shipment, the price level is now USD415/mt FOB ST LSD and all of these cargos were sold on Theoretical weight, not Actual weight.

Another example, India (JSW and Bushan) have sold close to 100,000mts of HRC in SAE1006 Aluminum Killed and all 2.0mm x 1250mm to Vietnam and the price is USD503/mt CNF FO and all March shipments as well. It will be 2 x 50K boatloads shipped to Vietnam.

A final example, Iran, Brazil and Ukraine are selling 130mm x 130mm x 12m Billets into Philippines, Thailand, Indonesia and Sri Lanka at USD410/mt – 415/mt CNF FO for ST5sp quality which is C:0.28-37%, Mn:0.60-0.90%, Si:0.15-0.30%, P/S:0.045% max each. End use is for High Tensile Debars.

The Debars, HRC and Billets are ALL traditional Chinese products for export and others are now taking the final piece of the cake, and unless Chinese prices make a huge correction in next 3-4 weeks, it is going to be difficult for them to regain.

THIS IS THE SENTIMENT OF OTHER TRADERS IN THE MARKET regarding the 3-4 weeks, but the question remains WHY are Chinese prices being buoyed at such high levels, and I have a different opinion than others on that answer.

My opinion is that China knows the SE Asian markets are their Home Turf and in order to keep the prices high, they have to absorb some losses, and by keeping their prices high, they are allowing other players to sell at high levels to these markets to keep their own domestic prices high. And when the bubble bursts, which it will, these other players are going to get burned and China will be right back in the driver’s seat, and prices still high enough for China to retake the markets.

These other supplying countries do not know the SE Asian buyers and how the operate, but China does, and the mentality is totally different here than in the rest of world. The Indians know, but Turkey, Ukraine, Brazil and Iran do not, and if there is a slight Hiccup here, the Sellers or Traders will get taken to the cleaners.

One scenario John:

Let’s say that HK and Singapore have purchased Debars at USD420/mt CNF FO and the new April levels would be USD435/mt CNF FO and the buyers bite, Billets at USD410-415/mt CNF FO for March shipment and new April levels at USD430/mt CNF FO and HRC at USD503/mt CNF FO and new April levels at USD515/mt CNF FO, and all of these new prices are accepted. What happens if China is USD5/mt lower than these levels for same shipment, and the hikes are intentionally orchestrated by China over the past 30-45 days to get levels high??? Are buyers going to honor the contracts with Turkey, Iran, India, Brazil, Ukraine etc.. which have 30-45 day sailing times or with China which have 10 days sailing time and USD5/mt cheaper??? The SE Asian markets cancel contracts for USD0.50/mt price differences John, not USD1-2-3-5/mt.

I think all of these price hike are being orchestrated by China just to see how high a price level can be achieved before they crash the party.

Why are Ore prices so high and still jumping??? Future’s market is the answer, not the Physical market and as I explained the Chinese port stocks are at 107 Million MT, so the need for more expensive Ore imports????