China still seeking steel billet imports

China's recent demand for imported steel billet shows no sign of waning, with fresh enquiries made this week for Qatari product and expectations that Iran will push more volume into China this year.

Chinese billet import demand first emerged in May after successive rounds of environment-related steel production restrictions were imposed on mills in the Tangshan region in the second half of April. A suspension of operations at rolling mills in Tangshan's Fengrun district in the middle of June also restricted domestic billet supply further, while blast furnaces in the Tangshan region were instructed to cut output by 50pc until the end of July.

At the same time, surging iron ore import costs and the resulting squeeze on mills' margins have led some Chinese steelmakers to focus on re-rolling billet rather than blast furnace production of crude steel.

Chinese traders and producers look to import billet when the Tangshan domestic billet price is higher than export offer options. But they are more keen when Chinese domestic billet futures prices spike at a time of prompt overseas billet availability. This enables them to lock in a profit by buying competitively price imported billet from sources such as Iran and selling futures.

It is understood that 100,000-200,000t of Iranian billet has been sold so far into China since May, although there is talk in the market of much larger volumes.

Smaller traders purchased Iranian billet around the $395/t fob Iran mark in May, and sold on to Chinese traders at around $450/t cfr China. Chinese state-owned traders are not thought to have been involved in these trades so far, given the risks associated with dealing with Iran in the international markets.

Qatar receives bids

Argus understands the largest Qatari steelmaker has not yet made a billet export to China.

It was confirmed to have received many Chinese enquiries over the last two weeks, and sought advice from traders during this period on which traders and importers to potentially deal with.

A Qatari exporter was confirmed to receive a bid from China at $445/t cfr China today for August shipment this week. But traders said this price was not workable for traders of Qatari and Iranian material. Iranian producers were heard to have sold two cargoes to traders for the south-east Asia markets in the past week at $375/t fob and $385/t fob, for 25,000t and 50,000t, respectively.

Market discussion suggests there has been at least one Qatari export sale to China but it is hard to envisage how anyone else other than the largest steelmaker in the country could build a large size cargo for China.

If Chinese traders expect Tangshan billet supply to remain restricted moving into the third quarter on expectations that more stimulus measures will be implemented by that time due to the weakening Chinese economy, demand for imported billet could increase.

Tangshan billet today was priced at 3,640 yuan/t ex-works, equivalent to $531/t ex-works. Once equating for value-added tax, tariffs and port handling charges totalling around Yn420/t ($61/t), and a minimum 2pc billet import tax, if China is successful in importing at current bids of $445/t cfr China, the total cost before port fees and truck to warehouse would be around $511/t.

Indian option

India could emerge as another option for Chinese importers in the third quarter.

Weak Indian domestic demand has led to a surge in semi-finished and finished Indian export steel offers in July. One Indian induction furnace-produced billet offer was confirmed into Kuwait and Dubai yesterday at $420/t fob.

High overseas billet availability is allowing China to bid lower than in previous purchase prices. Iranian suppliers have sold more material to traders in the past week for the south-east Asian markets. A Turkish mill's 50,000t billet sale, heard last week into Dubai at $455/t cfr Dubai, was heard this week to actually be Iranian material with Turkish documentation.

The depressed nature of Iran's domestic steel market was evident this week when it was heard that small-sized Lebanese rebar importers also purchased Iranian material, also with Turkish documentation accompanied.