Chinese Steel Prices Keep Rising
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
Baosteel has increased its October Chinese domestic ex-factory prices for HR and CR products by RMB50/ton and RMB200/ton, respectively. With utilization rates at downstream manufacturers (including auto players) on the rise, the speed of CR product price hikes is outpacing that for HR products, a difference that we expect to sustain for now.
Baosteel ups Chinese domestic steel prices: HR +RMB50/ton; CR +RMB200/ton
China’s Baosteel (600019.SH) has upped its October prices of HR and plate products by RMB50/ton, and CR products by RMB200/ton. The steep price hike trend for CR continued in October (+RMB260 in September); however, the pace of rise in HR slowed m-m (+RMB200 in September). We attribute this widening difference in speed of increase to: 1) greater demand for CR products; and 2) the fact that HR product distribution inventories have not decreased since mid-July, whereas CR product inventories continue to fall.
After slipping 21.8% y-y over January~March, Chinese auto production (which represents major downstream demand for CR) has been trending upwards since April, hitting double-digit growth in May (+16.3% y-y) and further accelerating in July (+21.8% y-y). With auto production anticipated to rise in 2H20, accompanying higher demand for steel should support CR product prices. Of note, CR product distribution inventory had shown a 33.2% y-y expansion in early March, but has declined to the previous year level as of early September. In contrast, HR inventory is currently around 12.8% higher than at the same point last year.
Chinese steel price hikes to be favorable for Korean domestic price rises, but extent to be limited
Chinese domestic steel market distribution prices (national average) for HR and CR stand at RMB4,053/ton and RMB4,700/ton, respectively, as of Sept 11, levels 0.3% and 5.3% higher than those a month ago. And, over the same time period, Chinese HR and CR export prices have upped 8.3% and 13.8%, respectively. In both China’s domestic and export markets, the pace of increase in CR prices is running ahead of that for HR.
The continued rise in Chinese steel prices should help domestic steelmakers to boost their product prices. The price of iron ore (Chinese imports from Australia: 61%) reached US$129.5/ton on Sep 3 (the highest level witnessed since Jan 14, 2014), a development which is creating a greater cost burden for Korean blast furnace players. We believe that it will be difficult for Korean blast furnace companies to raise prices over the immediate term for major domestic downstream industries (including auto and shipbuilding), expecting sales price hikes to be made mainly for products headed to distribution, re-rolling, and steel pipe players. Although the expansion in China’s CR product prices following the hikes in HR product prices bodes well for domestic blast furnace companies’ efforts to boost their product prices, both an inflow of low-priced Japanese imports and ongoing global economic uncertainties will likely limit the extent of such product price hikes.