FOCUS: Cooking at home? You're driving up China's flat steel prices

A global boom in home appliance sales during the Covid-19 pandemic is causing a shortage in flat steel supplies in China, and in turn supporting prices, Fastmarkets has heard.

Jiang Yuan, deputy director of the Department of Industrial Statistics at the country’s National Bureau of Statistics (NBS), said that China’s output of home appliances including fridges and ovens rose by more than 26% year-on-year in July, “thanks to higher overseas demand because more people are staying at home amid the Covid-19 pandemic.”
Chinese refrigerator production reached 9.36 million units in September 2020, up by 28% year-on-year. It produced a total of 64.76 million fridges from January to September, according to the NBS.
A Japanese source agreed and said that Japan had shown significant growth in demand for air conditioners, with people spending more time at home during the pandemic.
“This resulted in mounting orders to both home appliance producers and upstream material providers, especially cold-rolled coil producers,” a Shanghai-based trader said.
Many Chinese home appliance producers in Guangdong province have full production schedules until early next year, he added, thanks to robust demand in the global market.
This was providing sufficient orders to producers of cold-rolled and hot-dipped galvanized coil, he said.
Booming CRC business
Thanks to the demand from home appliance producers, China’s producers of cold-rolled coil (CRC) were now enjoying a gross margin of more than 500 yuan ($75) per tonne. This compared with last year, when most of them were facing losses, the Shanghai-based trader said.
While it normally costs around 400 yuan per tonne to process the upstream hot-rolled coil (HRC) raw material into CRC, the prices of CRC in some regions of China were more than 800 yuan per tonne above those of HRC, he added.
The price of steel CRC, domestic, delivered Eastern China domestic, was 4,730-4,770 yuan per tonne on Friday October 16, showing a premium of 840-870 yuan over the price of steel HRC, domestic, ex-whs Eastern China, on the same day, according to Fastmarkets’ assessments.
This change was largely triggered by the demand boom but was also influenced by a shortage of supply.
“China’s CRC producers had been cutting output since late last year, when many of them could not tolerate losses or minimal profit,” a second Shanghai-based trader said. “But now they are in a rush to increase output.”
Profit in the hot-dipped galvanized coil (HDG) sector, which is also a major material for home appliances, “is also high amid robust demand,” the trader said. “Some HDG producers in Shandong have received orders which will let them operate at full capacity until the end of the year.”
Fastmarkets’ weekly price assessment for steel hot-dipped galvanized coil, domestic, ex-whs Eastern China, was 4,840-4,860 yuan per tonne on October 16, up by 10-40 yuan per tonne from a week earlier.
Shortage of HRC supply
In response to the boom in the CRC and HDG businesses, China was also reporting a shortage of supply in the HRC export market, because mills were saving rerolling-grade HRC for the production of CRC and HDG.
Outside China, Vietnamese buyers had to pay more for imported HRC, after China asked higher prices amid limited supply.
Fastmarkets’ weekly price assessment for steel HRC, import, cfr Vietnam, was $520-525 per tonne on October 19, up by $5 per tonne from $515-520 per tonne the week before.
Early last week, Vietnamese buyers were heard to have bought at least 30,000 tonnes of rerolling-grade HRC from China at $520-525 per tonne cfr Vietnam, but “buyers later could no longer receive offers from China below $530 per tonne cfr Vietnam,” a Hong Kong-based trader said.
“That’s because we Chinese traders could no longer get rerolling-grade HRC from mills,” a Zhejiang-based trader said.
He said that his Vietnam customers kept raising their bids last week, “but my problem is I could not find any HRC resources, let alone negotiate prices with them,” he said.
A source at an eastern China mill confirmed this, saying: “We could provide HRC of SS400 grade, but we have to reserve rerolling-grade HRC for ourselves, because we need to produce CRC and HDG.”
Growth in CRC, HDG exports
China’s CRC and HDG exports were also performing well, with several sources believing that the boom in the home appliance business in the global market bodes well.
The prices of China’s CRC and HDG for export have dipped in the past few weeks, but that helped traders to win more deals.
Fastmarkets’ weekly price assessment for steel CRC, export, fob China main port, was $595-605 per tonne on October 20, down by $5 per tonne.
And the weekly price assessment for steel galvanized coil, 1mm, export, fob China, was $615-625 per tonne on Tuesday, also down by $5 per tonne.
A third Shanghai-based trader said that he had signed several deals for CRC with a northern China mill at around $600 per tonne fob China, for deals signed with buyers from South America and Southeast Asia.
He said that global demand for CRC has been strong in the past week, with some buyers in a rush to restock, seeing the rises in China’s domestic prices.
A second Zhejiang-based trader said that HDG demand from South America was also better than a week earlier, “partly boosted by demand from home appliance producers.”
She heard that a trading house restocked some HDG last week by signing a deal with a second northern China mill, with a price around $625 per tonne fob China being the base price for HDG with 120g per square meter zinc coating.
She was not sure about further details of that deal, but said that “many of my customers in South America are using HDG in home appliances this year.”
“I have heard that many developing regions such as China and South America are receiving more orders for home appliances this year and this bolstered the flat steel businesses,” she said, “after developed regions such as the EU slowed down production amid the pandemic.”
Paul Lim in Singapore contributed to this story.
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Miranda Song

miranda.song@fastmarkets.com

Published

Miranda Song

October 21, 2020

14:01 GMT

Shanghai