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Baosteel Defies Expectations by Keeping April CRC and HDG Prices Flat

|Includes:AK Steel Holding Corp (AKS), BHP, CLF, CMC, GGB, GNA, MT, NUE, RIO, RS, SCHN, SMSMY, STLD, VALE, WOR, X, ZEUS
Summary

According to trade press, Chinese price leader Baosteel has surprised the market with unchanged prices for most products for the coming month. We too were surprised, particularly given the recent price hike by competitor Wuhan earlier this week, and given surging demand for steel in Asia overall.

We suspect that Bao’s flat pricing is a thinly-veiled negotiating ploy as the benchmark iron ore price is expected to be set in the next month. However, April prices on HRC and plate have not yet been revealed, leaving the possibility that a sheet price increase from Bao could still come in the next few days. If Bao decides to hold the line on HRC and plate in April, we expect a larger increase will be in store for all sheet products in May.

Background

According to the press, Chinese price leader Baosteel has announced most of its April prices, raising wire rod by RMB 150-300 (4%-6%) and keeping sheet prices (CRC, HDG, silicon) flat. Cold-rolled coil is currently priced at RMB 5,826 and hot-dipped galvanized coil is priced at RMB 7,317. The company has not yet announced April prices for HRC or plate.

This follows Baosteel’s move last month, raising sheet prices RMB 300-600 for March shipments. It was widely expected by the market that Baosteel would lead sheet prices up again in April, and this sentiment became stronger after Wuhan came out first, announcing April price hikes of RMB 300 on HRC, RMB 300-600 on CRC, and RMB 200 on plate earlier this week.

Baosteel may be trying to time the increase around iron ore benchmark discussions – the company previously held the line on February prices as the iron ore benchmark discussions were getting started. However this is unlikely to provide any negotiating benefit given Wuhan’s increase and general market sentiment that steel prices will continue up.

Demand for flat-rolled sheet in China remains strong and with raw material costs continuing to rise, we view Bao’s decision to keep sheet prices unchanged for April as just a small blip in a continued upward trend.


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