Asian steel market hopes prices will rise as China returns from vacation

The rise in domestic steel futures and China's physical markets following the country's return on October 9 after a week-long national holiday has raised hopes in Asian market participants looking to reverse the direction of prices, despite the lack of evidence that these gains have driven regional prices higher.

The market has been closely watching for signs of a renewed arbitrage window for China on steel imports following a downward correction in domestic prices and a rebound in demand in Asia that closed the window in the third quarter.

In terms of procurement, China's last deal before arbitrage ran out was in the week of Aug 31 at $ 450 /t CFR China for Indonesian 3SP material, according to spot data.

In the afternoon in China, spot prices for a square billet of 235 sq. In Tangshan, Hebei Province, rose 60 yuan per tonne ($ 8.94 per tonne) from 30 September to 3445 yuan per tonne excluding reserves ($ 513.44 per tonne), including 13% value added. tax. The spike in prices was partly due to environmental controls on production, which led to reduced output and limited supply.

After deducting VAT, domestic prices stood at $ 454 per tonne, which on paper indicated the possibility for China to import steel if freight and import duties were developed for shipments from non-ASEAN countries.

Considering that the sea cargo on the October 9 spot market is scheduled for shipment in December and is likely to arrive in China in the same month or January 2021, and taking into account the inter-month USD equivalent spreads in November /December and December /January at minus according to Platts estimates that on the Shanghai Futures Exchange of $ 11.92 per tonne and $ 9.98 per tonne for downstream rebar futures, an arbitration window for shipments arriving in January may be open.

“Sentiment still seems mild when, after China's return, seeing scrap prices come under pressure and resale companies are reluctant to buy as much at the end of the year,” said a Manila-based trader. "This is if China does not return to bulk purchasing, which I personally do not expect."