FOCUS: Cutting shipping fees next weapon for Chinese steel exporters
Reductions to shipping and port fees comprise the latest weapon for Chinese steel exporters amid their country’s efforts to cushion the effects of the 2019-nCoV coronavirus outbreak.
China has halved the oil pollution compensation fees and canceled port construction charges for all vessels entering or leaving the country, in a move to soothe the economy further, the state council announced on Monday March 16.
These measures have been in effect since March 1 and will last until June 30, according to notices issued by the ministry of transport and the ministry of finance.
Shippers which qualify for these measures and have paid the fees in full can apply for reimbursement from the maritime administration, the documents said.
Shipping costs for both exporters and importers will go down because of these policies, especially with crude oil prices tumbling in the current economic climate, and this will be beneficial for traders, a Beijing-based steel trader said.
Freight costs for shipping hot-rolled coil from China to the key market of Vietnam have dipped to $10-11 per tonne, down by $2-3 per tonne from $12-14 per tonne last month. The cost of shipping steel to Pakistan has also dipped by $2-3 per tonne to $20-22 per tonne, compared with $22-25 per tonne one month ago.
The benchmark Brent Crude Index for oil prices closed at $30.05 per barrel on March 15, down from $33.85 per barrel on March 13, after the index showed the biggest weekly loss since the 2008 world financial crisis.
But “this doesn’t mean that China is expected to export more steel in the short term,” a Tianjin-based trader said. “Instead, I heard of some steel imports recently.”
A trader based in eastern China imported 20,000-50,000 tonnes of steel slab from Russia on March 16 at $412 per tonne cfr China, almost on a par with domestic slab prices.
Before that, there had been no large slab import deals heard since late December.
“I believe that many countries would prefer to export to China now, thanks to the cheaper shipping costs,” the Tianjin-based trader said. “Meanwhile, many countries are seeing their national currencies lose value, which means that exporting steel will bring them higher margins.”
For example, the Indonesian currency weakened to 15,137 rupiah to $1 on March 18, compared with 13,681 rupiah to $1 one month earlier, according to exchange-rate website Oanda.com.
“Based on that, I heard that a mill in Indonesia exported 20,000-50,000 tonnes of billet to China last week at $405-410 per tonne cfr,” a Shanghai-based trader said.
More steel supply in east China
Although the cuts in port fees should help to boost the overall economic revival, “it will first cause higher steel supply in east China,” a second Tianjin-based trader said.
This was because “China suffered from logistical chokepoints due to ports being locked down amid the coronavirus outbreak a few weeks ago,” he said.
“Many steel cargoes had been stuck in eastern and northern Chinese ports, and are now being delivered to their destinations after the restart of port operations. Buyers were not in a hurry to restock because there was ample supply,” the trader added.
This was also why HRC prices in the east were largely unchanged while those in the north were rising, he said.
Fastmarkets’ HRC prices in Shanghai fell by 10 yuan per tonne in the week ended March 13, while those in the north increased by 20-40 yuan per tonne in the same period.
Strong feedstock imports
While the coronavirus outbreak has affected China’s exports, which fell by 15.9% year-on-year to 2.04 trillion yuan ($290.4 billion) over the first two months of 2020, “it has had a limited influence on imports,” according to Li Kuiwen, director of the General Administration of Customs’ statistics and analysis department.
China continued to import commodities in January and February, with imports of iron ore and coal growing by 1.5% and 33.1% respectively year-on-year, Chinese Customs data showed.
“This reflects the steel output growth earlier this year,” the Tianjin-based trader said.
Sentiment continues to be mixed in the domestic Chinese steel markets, according to the trader. While most market participants in the country were bullish about economic performance in the months ahead, it was entirely possible that the economy would remain stagnant while companies resumed their activities slowly, he said.
China’s crude steel output was 1.81 million tonnes per day during the first third of March, up by 0.06% from the final third of February, China’s Iron & Steel Association reported.
“The reduction in port fees will further encourage raw materials producers to increase shipments to China,” the trader said, “as long as its steel prices stay high or mills keep their output levels stable.”