China's steel margins narrow sharply in Sep as high iron ore prices bite

Posted on 14 September 2020

China's domestic steel margins have slumped since the start of September due to high iron ore prices and a "correction" in finished steel prices, S&P Global Platts data shows.

Domestic rebar margins have almost halved since the start of the month, falling to $19.83/mt Sept. 10, the lowest level since the end of August l2019. Hot-rolled coil margins were $21.39/mt Sept. 10, the weakest level since early May this year.

Chinese physical and futures steel prices have softened in recent days on mixed sentiment, with some participants feeling prices may be due a correction after a buoyant third quarter market.

Chinese domestic HRC prices rose by 26% over April-September, while domestic rebar rose 10% over the same period, Platts data shows.

Looser credit conditions, along with strong property and infrastructure demand, have helped support the steel market since China came out of lockdown in the second half of March.

But economists at S&P Global pointed out in a presentation this month that "financial conditions have tightened as markets got too optimistic."

"The credit impulse also turned negative; this threatens a fragile recovery," the economists said.

Domestic steel margins have also come under pressure from high iron ore prices. The Platts steel mill margin model uses a three-week lag for iron ore prices, therefore mid-August IODEX prices that rose as high as $128.80/mt CFR China are being felt in finished steel prices now.

The outlook for iron ore is mixed, with some steel market sources believing prices have peaked and will weaken in Q4, providing some steel margin relief.

But mining sources said they were seeing extremely strong demand and expected seaborne iron ore prices to remain high in the final quarter.

Source : Platts