China turns to steel exports as domestic sales stall

Seaborne steel markets face a potential wave of Chinese exports from mills facing mounting sales pressure with domestic trade stalled by the coronavirus outbreak.

Chinese mills have shifted sales attention to overseas with domestic trade stalled and stocks growing beyond mills' capacities.

Most Chinese market participants expect nearly no domestic consumer demand in February, as even areas only mildly affected by the outbreak will only start receiving orders at the end of February.

Steel demand may not pick up until April, around a one-month delay to the typical spring ramp-up in early March, participants said, adding that schools might reopen in May.

The Chinese government has urged businesses to restart and transport links restored but many localities, including Shanghai, are still forbidding outsiders from entering. Train and bus services between cities are only gradually starting up, but many routes are still halted, blocking the return of workers to construction sites and factories. Some mills are without the required staffing to carry out maintenance overhauls.

Until China's economy restarts, mills have only one alternative to domestic sales — exports.

A north China based mill that had seldom been active in seaborne markets sold 100,000t of hot-rolled strip at $460/t cfr Vietnam last week, much lower than mainstream offers of $470-480/t fob China for the same grade coil.

The Argus fob China HRC index has fallen by $41/t, or 8pc, to $460/t since late January.

Other mills are aggressively chasing export business but with discounted offer levels unconfirmed.

A large Chinese mill is willing to sell SS400 grade HRC at $450-455/t fob China in face of huge domestic sales pressure. The mill also made an unconfirmed domestic price cut of 450 yuan/t ($64/t) for March deliveries of HRC but domestic sales are slow.

The Argus fob China rebar index fell by $6/t to $424/t fob theoretical weight yesterday, its lowest level since April 2017, pulled lower by Chinese mills selling more than 150,000t to Hong Kong, Singapore and Myanmar (Burma), with some deals as low as $415-420/t fob China.

One factor pushing seaborne indexes down this month has been short sales by trading firms expecting to obtain the cargo later at a lower price to fulfil the order. Some mills have been overwhelmed by trading firms' enquiries. A north China wire rod producer said they received so many export orders this week from trading firms that they had to pause sales to reassess.

But any large increase in Chinese steel exports will reverse a trend of recent falls and could reignite a sensitive issue with other key steel-producing countries. China's nearly 1bn t/yr steel production has been blamed for global oversupply, with steel one of the first products subject to US tariffs as President Donald Trump ratcheted up his trade dispute with China.