Imports, other regions fill Tangshan steel supply gap

An influx of steel billet into north China's Tangshan alleviated a supply shortage caused by the city's strict curbs on mill output last month, showing the limits of localised restrictions to slowing growth of China's steel output.

The 144mn t/yr steelmaking hub extended 30-50pc operational curbs to the year end, aiming to cut its steel industry air pollution by 40pc. The city accounts for more than half of Hebei province's crude steel output and made up about one-sixth of China's 1.053bn t output in 2020. But a high concentration of non-integrated billet production in the city has amplified the effect of its restrictions.

Tangshan billet prices rose to a 13-year high of 5,060 yuan/t ($781/t) ex-works in early April and achieved a rare premium to downstream rebar prices. Traded rebar prices in Shanghai fell to as much as discounts of Yn160/t to Tangshan mill billet prices on 5 April and did not regain a premium until a week later. The rolling cost to make rebar from billet typically stands at Yn200-250/t.

"Billet supply was very tight in March and early April, but the situation is different now," a Tangshan rolling mill official said. Billet from Shandong, Jiangsu and other cities in Hebei started to flow into Tangshan from March, along with imports from Malaysia, Indonesia, Vietnam, India and Russia. Vietnamese mills sold out of billet export allocations in the second half of March.

Production restrictions have also weakened billet demand. Rolling mills in Fengshun, Tangshan were shut over 21-30 April. The city's rolling mills consume around 70,000-80,000t of billet per day, but that demand fell to around 20,000-30,000t/d at the end of April, a Tangshan billet consumer said.

Seaborne billet was offered at $680-685/t cfr China last week, equivalent to Yn4,970-5,010/t against a Tangshan billet price of Yn4,990/t ex-works. The price parity has diverted most billet imports to the south to Jiangyin where billet prices are Yn140-150/t higher than Tangshan. Jiangyin in Jiangsu province is another billet consumption centre for mainly rebar producers.

"There were rumours that 400,000t of billet would be shipped to Tangshan in April, but actual billet arrivals was less than 150,000t in April as many ships were diverted to other ports halfway," a market participant at Caofeidian port said.

Chinese rolling mills use 150x150mm square billet to produce rebar and section steel. Tangshan mills use 100x200mm rectangular billet to produce a 200x300mm hot-rolled narrow strip. Chinese rollers also produce a 300x600mm wide strip, but that is made slab.

Unlike billet, there is very little spot trade for slab in Tangshan. The city is home to major hot-rolled coil (HRC) producers including Hebei Iron & Steel, Sinogiant and Ganglu Steel, but most of their slab is produced internally.

Tangshan billet profit margins rose to a multi-year high of Yn1,200/t ($185/t) on 2 April, according to Argus calculations that include costs of iron ore, met coke, scrap, other raw materials and processing.

Tangshan billet prices fell by Yn70/t to Yn4,990/t over 7-30 April.

Beijing has begun making plans to reduce the steel sector's carbon emissions, with one agency pushing for output cuts in 2021 and joining an audit of capacity cuts. Steel output is growing so far, with large mills setting a new record in April.

By Chris Newman

China domestic rebar to billet price spread Yn/t