Baosteel Raises HR Price for 4th Consecutive Month
Posted on 19 August 2020
The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. -- Ed.
China’s Baosteel has raised the September domestic ex-factory price for HR products by RMB200/ton, citing iron ore price hikes and expectations for demand recovery from downstream industries as justification for the adjustment. Going forward, whether the increase in Chinese steel prices will lead to an uptick in global prices is worth monitoring.
Baosteel hikes September plate product ex-factory prices to pass on cost increase
China’s Baosteel (600019.SH) has raised the September prices of HR and plate products by RMB200/ton, respectively, and CR prices by RMB260/ton. The move marks the fourth consecutive month of HR price increase for the firm. As of Aug 17, the price of iron ore had risen 33.8% from the start of the year to US$120.3/ton (Australian/CFR/61%), driven by increased crude steel production in China and concerns over supply disruptions at mines in 1H20. Of note, Baosteel typically relies on iron ore prices from 1.5~2 months prior in its cost calculations. Accordingly, the hike to September plate product prices reflects iron ore price expansion over June~July (average iron ore price: May US$90.5/ton, June US$100.9/ton, July US$105.3/ton).
Maintaining its stance from last month, Baosteel remains upbeat towards downstream industry demand in 2H20. However, the expected improvement in downstream industry demand is unlikely to boost the company’s profitability. While the export and domestic distribution prices for HR in China have recently climbed 10.8% m-m and 2.6% m-m, respectively, iron ore price expansion has limited ‘ASP-input cost’ spread improvement.
Rising steel prices in China to push up domestic and global steel prices
In the Chinese steel market, as of Aug 17, the domestic prices (national average) of HR and CR had jumped 18.4% and 17.9% from the respective lows this year of RMB4,059/ton (Apr 8) and RMB4,506/ton (Apr 29). For reference, such increases equate to price expansion of roughly W100,000/ton for each product. China’s HR and CR export prices have also climbed 23.0% and 12.4%, respectively, from the yearly bottoms witnessed on May 6, with the prices per ton upping by W110,000 and W70,000, respectively. On the other hand, in Korea, domestic HR and CR distribution prices have widened only W25,000/ton and W10,000/ton from the respective bottoms to W655,000/ton and W680,000/ton as of Aug 17.
Leading the global steel market, China produces roughly half of the world’s steel. As a result, when Chinese domestic steel prices rise, Chinese export prices rise as well, which in turn places upward pressure on global steel prices. Recently, however, Chinese domestic steel prices have strengthened while Korean domestic prices have not. Amid a contraction in economic activity and unresolved global economic uncertainties due to Covid-19, it is difficult to expect active purchasing from consumers at this time. Although major Korean steelmakers are attempting to raise prices, profitability improvement is likely to be limited, given that costs are also increasing.Source : Business Korea