LME fob China HRC contract trade doubles in March

Futures trade for fob China hot-rolled coil (HRC) doubled in March on the month as China's curbs on steel output and exports lifted its physical prices that were at a steep discount to US and EU prices.

Traded volume for the London Metal Exchange's fob China HRC contract rose by 113pc month-on-month, with 5,760 lots traded worth a nominal steel value of over $41m, according to data from the bourse.

The fob China contract was the exchange's second most traded ferrous product over the month.

The Argus fob China index rose by $77/t, or 11.2pc, to $763/t in March.

Tangshan's year-long extension of curbs on steelmaking supported domestic and exported steel prices in China last month. The restrictions are a deviation from previous years when environmental protection-related cuts were typically concentrated during the winter heating season from October to March. The curbs rolled out recently aim to penalise mills that have shown poor adherence to emission control norms and extend beyond Tangshan in some instances. The curbs have widened steel mills' margins to Yn1,000/t and above, according to estimates, despite strong iron ore prices.

The Argus ICX 62pc index rose by 0.9pc on month and were up by 90.6pc on year to average $166.90/dmt in March.

China is also expected to increase taxes on steel exports and possibly cut taxes for some ferrous imports in a bid to ease iron ore prices and reduce carbon emissions. Many market participants believe that the new tax regime, which will lower or remove rebates on steel exports, will be rolled out from April 10 though no official date has been announced.

The verdict on the impact on China's steel exports is divided. In the short term, the uncertainty has put brakes on steel exports from China as changes to export taxes could add around $100/t to the cost of HRC exports.

But some market participants see a less significant impact, given that not all of China's 50mn t of exports are expected to be affected by the new tax regime and with Chinese steel prices lower than overseas prices.

Spot prices for northwest European HRC rose by €105.50/t, or 14.2pc, to €846/t ($991.94/t) in March. Chicago Mercantile Exchange (CME) volumes of the Northwest European HRC contract rose by 83pc on the month, with 1,083 lots traded.

Monthly averages of the respective daily Argus indices are used to cash-settle the futures contracts of the CME Group's Northwest European HRC and the LME's fob China HRC derivatives.

The US Midwest HRC index rose by $74/t, or 6pc, to $1,314/short ton ($1,448.44/t) in March, 90pc higher than the fob China index.

By Deepali Sharma