LME fob China HRC volumes hit multi-year high

Ongoing weakness in Chinese hot-rolled coil (HRC) prices has sparked a flurry of trading on the London Metal Exchange's (LME) fob China HRC contract this month.

More than 100,000t will trade this month for the first time since summer 2020, according to exchange data.

Physical Chinese prices have been plumbing new lows recently amid tepid domestic and export demand. Argus' fob China HRC index, cash-settlement basis for the LME contract, dropped by $3/t today to $497/t, its lowest since August 2020. Asian export offers also appear to have dropped, with a Vietnamese quote tabled around $20/t lower today into the UK.

A 5,000t trade went through on the LME today at $498/t for August, following softening physical and raw material costs — the blast furnace raw material basket has dropped by around $25/t over the course of July, and in a buyers' market sellers are expected to pass this reduction off.

There is increased talk that China will look to clamp down on steel exports where value-added tax (VAT) has not been paid, but market participants note the last attempt fell flat, and volumes have not reduced much. During January-June this year the world's largest producer exported 15.6mn t of HRC, compared with 10.4mn t over the first six months of last year, and a record 23.9mn t over the year as a whole.

"In line with the growth in Chinese steel exports, in recent months we have seen renewed activity in the LME steel fob China HRC (Argus) futures contract from across the global value chain," LME product specialist steel and nickel Alberto Xodo told Argus. Interest has stemmed from major Chinese exporters, steel merchants in Europe and Singapore, as well as industrial groups in southeast Asia and the Middle East, he added.

By Colin Richardson