Steel spreads analysis: US-China HRC price difference hits historic high

Posted on 16 March 2021

The price difference between US Midwest hot-rolled coil and China domestic HRC has reached its highest level since S&P Global Platts started assessing these prices in 2008. The shortage of available spot material in the US saw the HRC price jump $32.50/st day on day to reach $1,299/st March 12, up almost 200% since last August.

In Shanghai, the spot price of Q235 5.5 mm HRC on that day was Yuan 4,950/mt ($761/mt). Planned production cuts in the northeastern city of Tangshan are likely to support prices further, while overall sentiment remains buoyant.

In the US, would-be buyers are now looking at June before they are able to source coil, therefore US prices will continue climbing. Given the high prices on offer, the US market is proving to be attractive to sellers from Japan and South Korea. US steel import license data shows that in February, South Korea was expected to export 196,000 mt of steel to the US, up 64% from January. Japan’s exports rose 85% month on month to 82,793 mt. Total HRC imports into the US rose 15% on month to 138,460 mt in February, according to US Department of Commerce data. Japan and South Korea have been lifting their exports to the US and Europe but have not been particularly active in Asian import markets. Chinese mills and traders have not been in a hurry to export given the high domestic prices on offer.

China’s steel mill margins gain strength

Chinese steel mill margins have strengthened since the end of the Lunar New Year holidays, largely on decent finished steel prices, particularly for HRC. As usual, rebar has been more volatile, but is likely to find more support as the warmer weather allows for a resumption of construction activity.

Seaborne iron ore prices have jumped around since the second week of March, with some sizeable day-on-day differences. But they are still at a very high level. Steel production cuts of up to 50% in Tangshan for environmental reasons are expected to dent near-term demand for iron ore, while at the same time support finished steel prices. This will provide some margin relief for mills. However, tighter iron ore exports out of Australia and Brazil in recent weeks and a shortage of some key medium grade fines products are likely to keep iron ore prices largely supported. In reality, the environmental restrictions have a marginal impact on overall steel production levels.

Chinese CFR premium coking coal prices have stayed at around $220/mt since the end of the Lunar New Year but could see some weakness on the back of coke price cuts and softer demand. This will also help steel margins.

Turkey rebar-scrap spread robust – for now

Scrap prices outside of the US started to soften in the second week of March. In Turkey, the weakening currency, allied with a dip in demand for rebar, both domestically and overseas, ended a two-week run up in imported scrap prices.

The Platts scrap-export rebar spread was just under $200/mt on March 12, compared to $162/mt at the start of 2021. Some mills thought this level would still put pressure on near-term scrap import prices, particularly if rebar demand doesn’t improve. Mills have been selective about procuring cargoes and are buying US-origin material at lower prices. Turkish HMS scrap imports fell $23/mt week on week to $437/mt CFR on March 12.

Source : Platts