Chinese steel prices spike with supplies in focus

Chinese seaborne steel prices rose today as tighter supplies and regional price differences offset the fading threat of Chinese tax hikes.

The Chinese central government kept silent on export taxes this weekend, missing a second targeted date for an announced rollback of tax rebates. A full repeal would add around $100/t in costs for flat and long steel exports.

The fob China hot-rolled coil (HRC) index rose by $45/t, or 5.4pc, to $865/t today. Chinese steel mills have stopped quoting last week's sub-$800/t fob prices for SS400-grade HRC that put the tax risk on buyers.

Buyers have begun to accept the higher prices. They have no lower priced alternatives. Japanese SAE1006-grade HRC is offered into Vietnam at $1,000/t cfr, while the same grade from India is offered at $970/t cfr. Similar China origin offers are as low as $930/t cfr. The thinner SAE1006 grade commands as much as a $15/t premium over SS400.

Northwest EU HRC prices are above a $1,000/t ex-works equivalent, while US HRC prices are above a $1,400/t ex-works equivalent.

Market participants have expected the government to roll back rebates on its 13pc value-added tax on exports since February. Beijing, which has not confirmed that any changes are coming, increased rebates last year from 20 March 2020 to counter the Covid-19 slowdown. The market had expected this year's changes by 1 April, then by 10 April and now there is no new target date.

"There was not much talk in market about when the export tax rebate will get released, as it seems buyers have already accepted current high prices at an assumed zero percent rebate rate, especially for HRC, and export trade is also on the way to getting back to normal," an east China trader said.

The tax uncertainty froze Chinese export spot sales this month, tightening seaborne supplies and increasing the pricing power of competitors. Spot trade picked back up late last week.

China's stricter curbs on steel operations have also cut regional supplies, lifting Tangshan billet prices to 13-year highs.

"Supply tensions remain, and prices will rise again unless China relaxes production restrictions," the east China trader said.

China could still roll back tax rebates. But if it fails to reduce rebates as expected, China's export steel prices are likely to fall back, an international steel trader said.

Key Asia steel producers aggressively raised domestic prices today.

Vietnam-based Formosa Ha Tinh today raised May-delivered HRC prices by around $150/t to above $900/t fob Vietnam, excluding freight to domestic ports, from May levels. The Asean HRC index, flat today at $919/t cfr Vietnam, has risen by $191/t, or 26pc, this month.

Chinese state-controlled Baosteel today lifted its HRC ex-works prices for May deliveries by 400 yuan/t ($61/t), while north China mill Angang raised its May HRC ex-works prices by Yn500/t from an April basis.

By Chris Newman