Short-term HRC Prices may Remain Stong amid Strong Fundamentals

SHANGHAI, Feb 21 (SMM) - Iron ore

Iron ore futures prices rose yesterday, with the most-traded 2305 iron ore contract closing with gains of 1.02% at 894 yuan/mt. Traders were active in delivery while steel mills purchased cautiously, hence the market transactions were modest. The transaction prices of PB fines in Shandong were mainly 895-900 yuan/mt, which was 5-10 yuan/mt higher than last Friday, while the PB fines in Tangshan were sold at 905-910 yuan/mt, up 8-10 yuan/mt from last Friday.

SMM statistics showed that the global iron ore shipments totalled 27.02 million mt, an increase of 7.8% week-on-week. Among them, the imports from Australia to China stood at 15.15 million mt, up 7.1% from the previous week, the imports from Brazil totalled 5.89 million mt, up 5.8% on the week. However, due to the reduction in shipments in the previous period, the arrivals in the current period was 28.52 million mt, a decrease of 1.06%. The shipments were still at an annual low despite the slight increase. It was rumoured yesterday that heavy rains in Brazil caused floods in some areas, which may affect the shipment of mines. On the demand side, the steel mills produced stably, but the increase in pig iron output was limited. Considering that the demand for rebar was in the recovery period and the market sentiment was positive, it is expected that short-term iron ore prices will still increase.

Coke and coking coal

On February 20, the transaction prices of first-grade metallurgical CQD in Luliang, Shanxi were 2,890 yuan/mt (ex-factory), flat from the previous day.

Downstream companies purchased on demand, and traders were less willing to pick up goods. The inventory of some coal mines increased, but the overall inventory was still at a low level for the time being. As such, the quotations were temporarily stable.

On the supply side, the prices of coking coal have fallen recently, slightly pushing up the profits of coke companies, and some coke companies intended to increase production.
On the demand side, the operating rates of steel mills increased slightly, and the pig iron output rose. Hence they still purchased some coke, but the traders did not buy goods.

Steel scrap

On February 20, quotes of steel scrap in China were generally stable.

On the demand side, the steel scrap stored by steel mills before the CNY holiday was lower than in the same period in previous years, which boosted the restocking demand from steel mills post CNY. On the supply side, the production of steel scrap recycling and processing enterprises has not yet fully recovered, and these companies were less willing to ship, which forced the steel mills to raise their purchase prices.

Rebar

Rebar futures prices added 0.53% yesterday.

On the supply side, in terms of BF mills, according to SMM survey, the construction steel output loss caused by maintenance dipped  4.72% WoW to 520,900 mt. EAF mills resumed production as scheduled, but they got low profit margins from the rising steel scrap prices yesterday. And many EAF mills maintained single-shift or low operating rates. The total output of construction steel continued to rise. On the demand side, the spot quotations in various places grew less compared with the futures prices. Some terminal companies made intensive restocking, and speculative demand in the market has simultaneously rebounded. The demand grew palpably.

HRC

HRC futures fluctuated with some ups yesterday and gained 0.49%. Spot transactions in various places have generally improved. The terminal and speculative demand in south China and east China markets increased, while the north China market was still dominated by speculative demand. The overall market trading was good.

HRC supply remains stable, but the higher profits of HRC might urge the steel mills to produce more finished products in the near future. The overall HRC demand is growing steadily. Demand in north China still recovered slowly, while that in south China improved greatly. The short-term fundamentals of HRC performed well. At the same time, the recent favourable macro policies have been continuously implemented, boosting market confidence. Therefore, in the short term, the prices of HRC will remain rangebound with occasional ups.