China's steel export product spreads with imported raw materials remain on an upward trajectory, as steel prices won sustained support from stronger-than-expected second quarter GDP growth and property markets.
Spreads for HRC and rebar exports climbed in June, aided by weakening raw materials import prices, analysis from S&P Global Platts showed. Gains in the spreads since followed robust steel prices.
The spread between HRC steel export prices and imports of iron ore with coking coal reached a new 15-month high of $287/mt last week, and around a third higher than levels a year ago.
The Platts China rebar export price spread reached over $270/mt last week.
Domestic and export steel prices in China tracked up over the past few months since an earlier price fall from a Q1 peak.
Rebar export prices have climbed to even surpass the earlier highs.
Rebar prices in China in July remained higher than reference domestic HRC prices.
China's Q2 gross domestic product growth was at 6.9%, beating estimates.
GDP rose from 6.7% in the same quarter in 2016, and a government target for 2017 of 6.5%, which was well above expectations, Commerzbank said Monday.
"Industrial production grew by 7.6% in June, which significantly surpassed expectations, while fixed asset investments increased by 8.6%," analysts at the German bank said in a note.
"Even though dynamism picked up noticeably in the second quarter, our economists do not believe the momentum will be maintained throughout the second half year. They expect the measures to cool the real estate sector in particular to contribute to more moderate economic growth in the second half of the year."
Iron ore reference 62% Fe IODEX prices have climbed this month, to average at $64.72/dry mt CFR China for the period through July 14, up from June's average of $57.20/dmt.
RAW MATERIAL COSTS
Raw materials costs for reference iron ore and premium coking coal imported into China fell further in June, and are the lowest on average since August 2016, based on Platts calculations using spot prices for quantities used per ton of hot metal.
June's import steel raw materials cost 30% higher than in June 2016.
China Iron & Steel Association data was confirmed by government statistics figures showing steel output in June posted a record high.
This was after a rebound from a softening in mill rates seen late May, increasing demand for raw materials.
The data may confirm mills raised production on the back of favourable operating margins, as indicated by industry sources.
However, price increases in domestic iron ore and coke, along with coking coal markets have been gathering pace.
Domestic steel raw materials price support, along with the rising cost of imports, may be reducing the attractiveness of arbitraging seaborne cargoes.
Some sources are seeing less interest in coking coal after spreads with domestic coke and coal prices narrowed.
Domestic coke prices assessed weekly by S&P Global Platts have risen consecutively since mid-June.
The spread between premium low-vol HCC imports with Shanxi premium coal assessed weekly fell to $2.97/mt on July 12, from $7.09/mt on July 5, on an equivalent basis.
