Positive signals from China to support steel prices, demand, and supply in equilibrium

Feb 23,2021

Positive signals from China account for 56.5 percent of global crude steel production. The figures will work to retain demand-supply in balance and provide support to prices.

The entire world is keeping an eye on the Chinese market, which opened last week after the New Year holidays. Since then, the market is expecting that prices would heal post-holidays after the lapse in January.

Jayanta Roy, senior vice president, ICRA, stated that "blocking last year when Covid-related constraints influenced China's steel market in February 2020, comparatively, past courses confer a typical upward movement in steel prices after new year festivities.

Post holidays opening of the Chinese market was awaited, especially in the wake of its sluggishness in January. After rising at $770 a tonne for hot-rolled coil (HRC) in December, Chinese prices descended to $625 a tonne in January 2021. Nevertheless, it reached $645 a tonne in February.

In India, too, the assembly interrupted after peaking in January. Secondary generators decreased the product costs that value two-thirds of production in the tenure from mid-January. And in February, primary producers dropped prices. In flat products, there was the softness in the trade segment.

The available data showed that Dalian’s most traded May 2021 iron ore prospects contract escalated by RMB 60 to close at RMB 1,131 a tonne ($174.35). But a grand opening in China could increase viewpoint and yield stability to prices. China started on a powerful note after the holidays on February 18.

According to Chief marketing officer, AM/NS India, Ranjan Dhar said, “the cues from China look favourable so far, on account of futures for HRC and iron ore, that opened positively.”

Jayant Acharya, Director (commercial & marketing), JSW Steel, said that if overall raw material costs continue raised, it would diminish margins in China and give a platform for steel prices. Further, Jayant Acharya added that “so there should be stability around prices.”

A secondary producer in the extended product section also said that the sensibility had changed in the last ten days, and the consequential opening in China was noteworthy.

Several other positive indicators that are emerging from China could anticipate reasonably for India. Acharya denoted, “Three messages are coming out of China such as an increased focus on moving towards green steel and reducing pollution, which would contain inefficient production. There is a movement to hold exports as it is a possibility of reducing export rebates from 13 percent to nine percent and a prediction that demand in China will rise slightly in 2021.”

Further, Jayant added that "this will boost export prices to the size of the decline in allowance and help link the gap between Chinese steel prices and the rest of the world. Also, balanced exports would be good for the steel industry globally.”

Dhar added that providing further stimulus to the positive sentiment was still an extra probable infrastructure push by China. It would overcome the demand for construction material in that country.

Additionally, with the pollution checks, China could resort to shipping billets from countries like India. During the initial months of lockdown, all major steel producers in India had exported billets, and China accounted for the lion’s share.

In the first quarter, India's billet shipping had reached 2.3 million tonnes; it descended to 1.1 million tonnes in the third quarter as domestic demand pulled up.

Further, Dhar said that “in India, I am optimistic about demand prospects, supported by macroeconomic growth. Newer segments show signs of recovery like commercial vehicles, yellow goods, infrastructure, etc.”

He added that “the signs of weakness in the trade segment were on account of traders trying to book profits on material brought in October, November, and December. I think, by February-end, they should have reduced considerable inventory. I am not concerned as long as demand remains good.”

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