Chinese company Baosteel raised its domestic selling price for HR products by 200 yuan per ton for September, citing higher prices for iron ore and expectations of a recovery in demand from processing industries as a justification for the adjustment. Looking ahead, it is worth monitoring whether the rise in steel prices in China will lead to an increase in world prices.
Baosteel Raises Flat Sheet Selling Prices In September To Compensate For Higher Costs
Chinese company Baosteel (600019.SH) raised September prices for HR and flat products by 200 yuan per ton, respectively, and prices for CR by 260 yuan per ton. The move marks a fourth straight month in HR prices for the company. As of August 17, iron ore price has jumped 33.8% YTD to USD 120.3 per tonne (Australian standard /CFR /61%) driven by increased crude steel production in China and concerns about disruptions in deliveries to mines in 1H20. It should be noted that Baosteel typically uses iron ore prices 1.5-2 months prior to starting its cost calculations. Accordingly, the increase in flat steel prices in September reflects the rise in iron ore prices between June and July (average iron ore price: USD 90.5 /t, USD 100.9 /t in June, USD 105.3 US per tonne in July).
Maintaining last month’s position, Baosteel remains optimistic about downstream demand in 2H20. However, the expected improvement in downstream demand is unlikely to increase the company’s profitability. While export and domestic sales prices for HR in China recently rose 10.8% and 2.6%, respectively, the rise in iron ore prices limited the improvement in the “raw material cost” spread.
Rising steel prices in China will lead to higher domestic and world steel prices
In the Chinese steel market as of August 17, domestic (national average) prices for HR and CR jumped 18.4% and 17.9% from their respective lows this year of 4,059 yuan /ton (April 8) and 4 506 yuan per ton. ton (April 29). For reference, this increase corresponds to a price increase of about 100,000 won per tonne for each product. Export prices for HR and CR in China also rose 23.0% and 12.4%, respectively, from their annual low on May 6, with prices per tonne rising 110,000 and 70,000 won, respectively. On the other hand, in Korea, domestic allocation prices for HR and CR increased by only 25,000 won per tonne and 10,000 won per tonne from their respective lower limits to 655,000 won per tonne and 680,000 won per tonne as of August 17th.
China, the leader in the global steel market, produces about half of the world’s steel. As a result, when domestic steel prices in China rise, China’s export prices also rise, which in turn puts upward pressure on global steel prices. Recently, however, domestic steel prices in China have risen, while domestic steel prices in Korea have not. With economic slowdown and unresolved global economic uncertainty due to Covid-19, it is difficult to expect active buying from consumers at this time. While major Korean steelmakers are trying to raise prices, the improvement in margins is likely to be limited given rising costs.