Chinese steel prices
US steel prices (X) (MT) have been strong since Donald Trump’s election win. But since China is the largest steel producer and exporter, it’s important for investors to keep track of Chinese steel prices. Notably, the rally in Chinese steel prices was a key driver of global steel prices in 2016.
Raw material prices
Along with higher domestic demand, Chinese steel prices have taken support from higher coal and iron ore prices. The above graph shows the movement in Chinese HRC (hot rolled coil) prices, plotted against benchmark iron ore prices. As you can see, the two have generally been moving in tandem with each other.
This movement isn’t surprising because Chinese steel mills rely heavily on seaborne iron ore. The country accounts for two-thirds of all seaborne iron ore demand. China is the biggest market for leading iron ore names like BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE).
Coking coal has fallen
Although iron ore prices have held above $80 per metric ton, coking coal prices have pared some of their 2016 gains. Notably, coking coal prices more than tripled last year on China’s capacity cuts and supply disruptions in Australia. However, as these gains were not exactly backed by fundamentals, coking coal prices failed to hold on to higher price levels. Still, coking coal prices have risen more than 100% as compared to January 2016.
Meanwhile, higher iron ore prices seem to be supporting Chinese steel prices. Although most analysts expect iron ore prices to fall from these levels, prices have been quite sticky.
Now let’s take a look at Chinese steel demand indicators.