Lower November Chinese steel production than prior months and low monthly steel export volumes still highlight stronger demand fundamentals in the world's biggest steel market, Commerzbank said Friday.
Chinese steel output, mainly through blast furnaces, surged earlier this year, as documented by the National Bureau of Statistics.
A slowdown had been expected as seasonal pollution-related steel output and raw materials processing cuts widened over the northeast of China last month.
Against this background, the German bank said an 8.6% month-on-month fall in Chinese steel production to 66.15 million mt last month may be seen in the context of November 2016, where output was almost unchanged.
"Despite the low production level, China exported somewhat more steel and steel products again in November," Commerzbank analysts said in a note.
Growth in steel output earlier this year came after the halt of illegal steel production mainly using scrap iron, which was not captured in the official statistics, and as domestic steel demand rose, especially for construction grades.
A rise in steel exports by 7.4% month on month to 5.4 million mt still leaves shipments at a low level, the German bank said. Export rates since January are around a third lower year on year.
Chinese steel exports in October fell to their lowest level since February 2014.
"This still puts [exports] at a very low level, which is due above all to high domestic demand and price," Commerzbank said.
"The lower steel production in November had not yet resulted in a decrease in iron ore imports, which supported the iron ore price."
Steel indicative margins in China have been supported by steel prices, as imported coking coal and iron ore prices climbed this month.
In China, spreads between steel and prices of imported blast furnace raw materials remained close to multi-year highs reached in September, with Platts China HRC export spread on Friday at $317.83/mt. The highest China HRC spread seen so far this year was $356.48/mt.
On Friday, iron ore 62% Fe reference prices rose to $71.45/dry mt CFR China, from an average $64.28/dmt in November.
Iron ore import prices into China rose last month and continued to strengthen in December. Steel feedstock costs have rebounded toward an August high, according to an analysis by S&P Global Platts.
Margins may be aiding some restocking of raw materials ahead of Chinese New Year, with mills also readying plans in preparation for the lifting of steel output curbs in the spring.
Source: S&P Global Platts