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Analysis: China steel mill spreads make strong pre-holiday recovery

Global Steel & Raw Materials

June 1, 2017 -- By Hector Forster

A combination of firming Chinese export steel prices and softer import iron ore pushed up indicative China steel industry margins before this week's public holidays, according to S&P Global Platts data.

China mill spreads between HRC steel export prices and imports of iron ore and coking coal recovered further to $247.20/mt as of May 26, up from around $150/mt on April 19.

The Platts China HRC Export spread peaked at over $266/mt FOB on March 7.

The rebar export price-based spread has gained further, at $241.70/mt May 26 to mark a 2017 high, up from an April 13 low of $136/mt.

The spread is the highest since early May 2016. This is driven by higher export and domestic steel prices in China over May after prices in April fell.

Hot metal and steel production surged in April after strong first-quarter Chinese output. Sales volume growth in China for long steels in April, and a contraction seen for flat steels, reflected better profitably for rebar and other long products.

Market participants believed stronger profitability for rebar over flat steel may have continued through May and into June, according to earlier Platts analysis.

Average profit from producing rebar was indicated at around Yuan 700-800/mt ($102-$117/mt) -- up to four times that of HRC's. China HRC export prices last reached $437.50/mt FOB May 26, up 4.2% from prices at the start of May, based on Platts daily assessments.

The benchmark flat steel grade recovered from $408/mt on April 20, which was down from a peak of $511/mt FOB in early March.

Rebar export prices have rallied similarly, up 4.2% to $432/mt FOB May 26 from May 2. Prices are closer to the year-to-date high of $446/mt FOB in early March.

Iron ore import prices have fallen this week to $57.80/dry mt CFR China, after prices breached the low $60s/dry mt in a $60-$70/dmt range seen since April 12.

This is after iron ore prices averaged in a $80-$90/dmt range in the first quarter.

Seaborne coking coal spot prices into China have now fallen under levels seen in March, after an April rally stoked by shortages immediately after Cyclone Debbie's flood impact on rail lines in Queensland, with subsequent declines in prices through May.

In China, domestic coking coal and coke prices have fallen throughout this month, as tracked by Platts weekly assessments.

With the China spreads now indicating mill margins are looking better supported, operating metrics against current iron ore and coal prices may better support steel production.

Stronger utilization rates may support products such as higher grade solid fuels and iron ores.

China's April crude steel production remained elevated, while early May saw a softening in rates from the prior month, according to the latest China Iron & Steel Association data.

Platts analyzes other steel and scrap products in this feature:

Iron ore | Scrap | HRC | Rebar | Semi-finished | News

Next commentary: US ferrous scrap prices talked flat to down for June

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