Capesize

17950

Sep-17
0.00 0.00%

Panamax

11175

Sep-17
225.00 2.05%

Iron Ore

76.5

Sep-17
0.85 1.12%

Sing 380

278.25

Oct-17

Coking Coal

208

Sep-17
0.00 0.00%

Nola Urea

212.5

Sep-17
0.00 0.00%

The Green scare in China’s output


The Chinese authorities have taken a tough line against steel mills that released harmful emission, with issuing of warnings and production cuts. Apparently, the tough “green measures” had dampened market outlooks, with mills pre-occupied with meeting strict environmental regulations and spared little thoughts over procurement in the seaborne market.

In addition, market uncertainty persisted over the expanding trade clashes between US and China which dented the overall demand outlook, and found support in bearish comments from Wang Yingsheng, the vice secretary general of the China Iron and Steel Industry Association.  He opined that Chinese steel market will be affected significantly if the tariffs war between US and China intensify into a full-fledged trade war.

For the coking coal market, the threat of supply disruption from Cyclone Iris had subsided which hardly affected the pricing of the commodities. Despite of that, it was a general buyer market with further price softening where sellers rushed off to liquidate their cargoes,

 

Chinese authority issues “Yellow Card” to 12 mills

Chinese authority has issued warnings to 12 steel mills over failures to comply with environmental, safety and other regulations. Under the warning structure, the twelve firms will not be asked to shut down, but instead asked to do some rectification on their equipment to meet the imposed industrial standards.

According to Ministry of Industry and Information Technology (MIIT), Hebei Rongxin Iron and Steel Group as well as Shanxi Xintai Iron and Steel were among the mills that failed to submit a self-inspection report on time.

So far, MIIT has used the warning system that closely resembled soccer match rules, where the offenders were first issued a warning in form of yellow card, then proceed by red cards where they will be removed from the list of qualified enterprises.

Previously, around 19 steel-related companies had been removed from the qualified enterprises list in this manner for not complying to the environmental regulations imposed by the authority.

  

More EAF approved under China’s supply reform

The Chinese authorities have encouraged the use of more electric arc furnaces (EAF) as part of their supply reforms in steel sector. Under the plan, the authorities will approve up to 149.8 million mt of new steel-making facilities between the start of 2017 and April 2018. Among the new facilities, around 51.4 million mt or 34% will comprise of the EAF, while the rest will be converters.

The new facilities are likely to come online in the 2018-2020 period, while in the meantime, it is estimated that China will close around 169.7 million mt per year of its old steel-making facilities.

So far, China has opted for more usage of EAFs in a bid to improve air quality in cities and in turn begun the gradual replacement of induction furnace capacity. As such, China had closed 140 million mt per year of induction furnace capacity in 2017 alone.

 

China’s Xuzhou places under new round of output cut

China, Xuzhou was placed under a new round of environmental protection, affecting around 5,000 tonnes of pig iron production decrease per day. Mills based in Xuzhou were to halt production due to failure to comply with environmental regulations.

Moreover, it was heard that only a few steel mills based in Wuan, Hebei province have been granted by the Chinese authority to run full capacity over the next six months. At this rate, some trade participants were concerned that more mills may be forced to cease productions due to measures being introduced to clear smoggy weather in China.

 

Australia govt upgrades iron ore prices for 2018

Australian government has revised the prices of iron ore upward due to the strengthening steel demand in China. According to the Australia’s Department of Industry, Innovation and Science, the average FOB Australia iron ore prices are estimated at $61.80/mt on 2018, up $10.30/mt from previous forecast given in the October-December 2017 quarter, and up $11.30/mt from its year earlier forecast.

The uptick in forecast reflected the strong steel prices and output in China in the first quarter of 2018, despite the introduction of production curbs and stricter emission regulation in China-based mills.

Going forward, the department estimated that iron ore prices to drop and averaged around $49/mt FOB Australia in 2020, after slowing steel demand in China. Then, the steel market is predicted to recovery and lifted the overall average prices to $53/mt in 2023.

Moreover, the Australian iron ore exports are estimated to grow to 891 million mt in 2020 and then to 896 million mt in 2021, before easing back to 895 million mt and 894 million mt in 2022 and 2023, respectively.

 

FMG foresees lower iron ore exports to China from the miners

Fortescue Metals Group (FMG) stated that global iron ore miners had stopped adding new production capacity for exports to China-based steelmakers. The Australia’s miner opined that the China market is awash with supplies from the built-up of high inventory among the ports.

However, FMG predicted the steel demand in China to remain high, while the country’s steel output is expected to stay relatively flat. As of Friday, 13 Apr 2018, the port inventory in China stood at 158.12 million tonnes, down 60,000 tonnes as compared to volume recorded at 4 Apr 2018.

In the meantime, the drawdown of rebar stockpiles among the China-based mills had accelerated as China’s construction activities approached seasonal peak period due to warmer weather. As such, the inventory of steel rebar in China had dropped for a third consecutive week in a row at 8.73 million tonnes as of 4 April 2018, based on SteelHome’s data. The fast drawdown of steel inventory contrasted with mid-March inventory which peaked previously at 9.78 million tonnes.

 

India’s Odisha miners cut prices by 10% for April contract

India’s mine producers in Odisha had reduced their iron ore prices by 10% for new supply contract in April 2018. According to local media, the Indian miners in Odisha accounts over 50% of the country’s output and supply of iron ore to steel plants.

For instance, price of iron ore fine quoted by Odisha suppliers has come down to Rs 2,000 per tonne (USD 30.90/mt) from Rs 2,200 per tonne (USD 33.97/mt), the sized ore lump price has also slumped to Rs 4,300 per tonne (USD 66.39/mt), from Rs 4,800 (USD 74.11/mt).

 

Coking coal prices to average at $200.50/mt for 2018

Coking coal prices are estimated to average at $200.50/mt for 2018, up $49.20/mt from previous estimate, according to the forecast of Australia’s Department of Industry, Innovation and Science. For 2019, the department foresaw the prices to average at $152.20/mt for this year, up $32/mt from previous estimate.

The higher estimate was due to supply disruption among the Australian export where bad weather-related damage and infrastructural problem led to short coking coal supply. For instance, Australian rail operator, Aurizon Network has announced that 20 million tonnes of coking coal capacity were lost due to maintenance issues in Queensland, Australia.

Besides, the coal capacity will be further reduced by the temporary closures in terminals like Gladstone and Dalrymple Bay in April and May for berth maintenance.

 

Verdict

FIS market analyst, Pei Hao foresaw a short-term bearish market ahead with new round of strict environmental regulations. He expected the DCE to find first support at 432.5, while the first resistance at 475.

He noted that the intra-day low is above the major support on 432.5. If this level is broken on next trading day, then the market would expect a bearish sentiment in mid-term. Otherwise, the market will stay within the consolidation area of 432.5 to 460.

 

16Apr2018