China steel mill margins are reaching new highs as HRC prices in China Wednesday added upward pressure on spreads with coking coal and iron ore, analysis by S&P Global Platts showed.
The spread between steel prices and imports of iron ore with coking coal help determine indicative operating conditions of steel mills, and raw materials demand.
On Tuesday, China's HRC export spreads pierced $300/mt, and were within a whisker of exceeding April 21, 2016, levels of $301.80/mt. China's flat steel spreads are close to exceeding the highest levels in at least three years.
The Platts China rebar export price spread reached $291.60/mt Tuesday, building on earlier gains for the construction grade.
Chinese domestic and export HRC prices as assessed by Platts rose sharply Wednesday, putting momentum on spreads and iron ore and HCC prices to catch up.
Singapore's National Day left key seaborne steel raw materials trade and assessments taking a holiday break Wednesday.
China's steel export product spreads with imported raw materials have grown strongly, providing support to imports and usage of better quality iron ore and coking coal grades as mills chase productivity.
They are striving to lock in steel sales and volumes at higher prices, ahead of the potential for later policy-driven changes and caps on output.
China's steel prices remain supported off the back of stronger-than-expected second quarter GDP growth in China, with property markets adding demand for rebar. Several analysts expect these China market conditions to cool, and iron ore prices to fall by the end of Q3.
Spreads for HRC and rebar exports climbed in June, aided by weakening raw materials import prices, while in July and into August, steel price increases took hold in leading values.
Domestic and export steel prices in China have risen over the past few months since an earlier price fall from Q1's spike.
Rebar prices in domestic China markets in July were higher than reference domestic HRC prices, while since August 4, HRC has taken on the lead.
RAW MATERIAL COSTS
Raw materials costs for reference iron ore and premium coking coal imported into China rose 14% on average in July from June's ten-month low, based on Platts calculations using spot prices for quantities used per ton of hot metal.
July's import steel raw materials cost was 37% higher than in July 2016.
So far in August, iron ore reference 62% Fe IODEX prices have climbed, to average at $74.48/dry mt CFR China for the period through August 8, from July's average of $67.20/dmt.
