ANALYSIS: China’s steel export prices set tone for global markets

Steel price trends and market fundamentals in China set the heartbeat for the international spot market.

The country is not just the world’s biggest steel producer, but also the biggest exporter globally.

As such, any price and macroeconomic changes it experiences have a ripple effect on the rest of the world.

According to the World Steel Association’s (Worldsteel) 2018 edition of World Steel in Figures, China was the single largest exporter of steel globally in 2017, with 74.8 million tonnes of shipments. Data from the country’s customs authority shows that Chinese steel is shipped to the furthest reaches of the globe, including Africa, the Americas and Europe.

Market-moving prices
Steel products from China are also a regular fixture in the global spot market, especially for buyers looking out for the most competitively priced flat, long and semi-finished products.

It is no wonder than that Chinese export prices are one of the most-referenced by international market participants who adjust their buying and selling strategies based on changes in US-dollar-denominated fob China export prices.

A closer look at the export prices for two of China’s major steel products – which are tracked by Metal Bulletin’s daily indices – show that their movements lead international markets.

In the flat steel segment, prices in Europe have displayed a strong correlation to China’s export prices for hot-rolled coil. This is due to re-rollers in international markets typically importing HRC for processing into cold-rolled coil, hot-dipped galvanized coil and color-coated coil.

For instance, Metal Bulletin’s fob China HRC Index went from $539.38 per tonne on October 30 last year to a peak of $620.81 per tonne on March 6 this year. This uptrend coincided with winter production cuts implemented in north China to cut emissions.

Tracking these movements were the import prices for HRC in Southern Europe. According to Metal Bulletin’s assessment, the price went from €500 ($584) per tonne on November 22 last year to a high of €575 per tonne on March 21 this year.

The lifting of the winter production cuts in north China at the end of March led to higher steelmaking rates, resulting in an increase in domestic inventory levels for flat steel that weighed on export prices and kept them rangebound. Import prices in Europe moved in a similar fashion, declining as low as €520 per tonne in May.

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An even closer correlation can be seen in the long steel segment, where fabricators typically import China-origin rebar to cut and bend into meshes and cages for use in the construction sector.

In this segment, import prices for rebar in Singapore – a gauge for the rest of Southeast Asia – closely track the movement of the Metal Bulletin fob China Rebar Index.

The index, which charts prices on an actual weight basis, rose from a trough of $520.35 per tonne on November 2 last year to a peak of $585.63 per tonne on March 1 this year.

Import prices for rebar in Singapore, which Metal Bulletin assesses on a theoretical weight basis, moved accordingly from $520 per tonne cfr Singapore on November 13 to $585 per tonne cfr on March 5 this year.

Once idled Chinese rebar capacity were restarted after the lifting of the winter production cuts, export prices started to trend downward, falling to a low $531.69 per tonne fob China on April 13.

Import prices in Singapore followed suit, dropping to a low of $536.50 per tonne cfr Singapore on April 16.

Both prices later rebounded in tandem with each other amid declining inventory levels in China coupled with a seasonal return of demand.

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As China enters into a “new age” of steelmaking from this year onward, its importance in the global steel industry will continue to grow. And so will its prices.

Tracking these movements are Metal Bulletin’s indices, which provide the market a transparent third-party reference.