Competition gives Chinese coil rare premium: Update

Adds today's prices

Chinese export coil prices have held at a premium to delivered Asean prices since mid-August. China in the past has pulled Asean prices higher to flip back to a discount, but this time the market expects China will be pulled lower.

The price for SS400 hot-rolled coil (HRC) fob China has held higher than Asean SAE1006 grade coils cfr Vietnam since 15 August, rising to a premium of $18/t today. The Argus Asean index fell by $6/t to $431/t cfr Vietnam for SAE1006 today, while the Argus fob China HRC index fell by $1/t at $449/t fob Tianjin for SS400.

It is the third time since 2017 that Chinese HRC prices have been at a premium. The fob premium is not typical because of the freight cost, currently around $10/t, and higher prices for the thinner SAE1006 coil.

Prices for Chinese origin SAE1006 grade coil should be $5-10/t higher than that for SS400 HRC, market participants said. SAE1006 HRC is higher quality coil, up to 3mm thick, compared with SS400 grade with thickness of 3-7mm. The premium can be even higher for re-rolling grade SAE1006 HRC that has a higher percentage of coil up to 2mm thick.

But fierce competition from India has pulled down prices into Vietnam.

Offers for China-origin SAE1006 HRC were around $10/t higher than India-origin SAE1006 in late July, while this premium had widened to $20/t by early September, according to Argus cfr Asean HRC country origin differentials. Indian coil prices plunged in late August, when trading firms holding more than 100,000t of India-origin HRC at Vietnamese ports sold aggressively to cut losses for coil bought from steel mills at higher prices.

The Argus Asean HRC index fell by $24/t, or 5pc, to $459/t in the second half of August, as trading firms kept cutting offers for the Indian coil and were unable to sell out even at $460/t cfr Vietnam.

Chinese mills have had to cut prices for SAE1006 HRC to maintain their market share and fulfil export allocations, pushing down prices for its cfr prices, Chinese mills said. But prices have been held higher by domestic prices, with Shanghai HRC at 3,600 yuan/t ($504.02/t) today, around $55/t higher than export prices.

"We do not want to export now as Chinese domestic prices are much higher than export prices," a north China-based mill official said.

But most market participants expect Chinese cfr prices for HRC will fall further as seaborne buyers could choose to import from lower priced origins. Supply pressures have been sending global seaborne steel prices lower, with Taiwanese and Japanese mills that typically sell at a premium already following the downtrend, traders from Vietnam and South Korea said. A Taiwanese mill sold 5,000t of SS400 HRC with 2mn and higher thickness at around $465-470/t cfr South Korea in late September.

This price was competitive against Chinese offers of $460-470/t fob China for the same grade coils. Now sellers are offering at $430/t cfr Vietnam for the same grade coil produced by Indian mills, inviting bids as low as $420/t cfr Vietnam. Indian mills will further cut prices, given the country's rising output, weak domestic demand and lower production costs, Vietnamese trading firms and mills said.

Argus HRC fob China to cfr Asean differential $/t

Argus HRC fob China to cfr Asean differential $/t