China steel mill margins strengthened further this week, after spreads between HRC and rebar with imported iron ore and coking coal reached the highest level since at least October 2010, based on data available, analysis by S&P Global Platts showed.
On Friday, China's HRC export spreads rose to $308.92/mt, up 4.6% on a week earlier, as levels exceeded an earlier peak on April 21, 2016, of $301.80/mt.
While China's flat steel spreads have broken new highs after volatility in steel and raw materials so far this year, 2014 had a longer run of strong mill spreads.
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.
The Platts China rebar export price spread reached $297.92/mt Friday, up 4.4% on a week earlier. The rise built on earlier gains for the metric between prices for the construction steel grade with iron ore and HCC.
The data analyzed used Platts export prices of HRC and rebar at Chinese ports, along with CFR assessments of imported reference 62% iron ore and premium HCC prices.
Varying qualities of raw materials and respective premiums, and differentials to the raw material benchmarks, along with local domestic steel and raw materials pricing may lead to variations around the data used in specific cases.
CISA WARNING
The China Iron & Steel Association (CISA) took aim at recent steel price spikes, stating this week the market was overreacting to the potential for supply cuts later this year and the forced closure of induction furnaces.
The clamoring for steel by users and traders hiking prices was leading imported iron ore prices to climb, it said. On Friday, Platts 62% Fe reference IODEX assessment fell $1.45 to $75.05/dry mt CFR China.
CISA said there had been no sign of supply tightness or shortages in steel markets because of these cuts, and did not expect shortages to occur in future.
Steel mill spreads in Asia in July hit the highest levels in almost three years, boosting operating conditions for producers.
Steel price increases led the expansion, as iron ore and coking coal import prices into China rose.
Raw material costs for reference iron ore and premium coking coal imported into China rebounded in July, after reaching a low in June.
Based on spot prices for quantities used per ton of hot metal, July's import raw material costs were the highest since April, while July's import steel raw materials were 37% higher than in July 2016.
Indicative export rebar spreads for China have grown faster than Turkey's Platts TSI HMS scrap-based rebar export spreads, and remain far stronger.
The Rebar Scrap Turkey Spread averaged at $157.14/mt in July. While the cash cost of melting scrap to make steel is generally lower than making steel via the blast furnace route, the gap with China's rebar spread of $283.29/mt may be helping Turkish mills seek out acceptance for higher rebar export prices.
Into August, Turkey's FOB rebar prices remain lower than Chinese FOB prices, despite strong increases in Turkey's offers.
In the Turkey and Black Sea region, scrap melt margins for rebar rose, along with a small increase in re-roller margins, as export rebar prices strengthened.
