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Jeffery Lu



Articles by Jeffery Lu

How much more metallurgical coal can China buy from the US?

June 13, 2018

The metallurgical coal market has been abuzz with chatter since reports last week of a $70 billion package proposed by China to narrow its significant trade deficit with the US.
Among the range of energy, agricultural and manufactured products that China may look to significantly increase purchases of, coal is one that has been identified by both sides. However, there is a lot of uncertainty over how much China can further deepen its collaboration with the US in the coal sector.
The US is the world’s second-largest exporter of seaborne coking coal. However, it is a swing supplier, tending to export only when prices are high.
Looking at US-China coking coal trade flows in the last few years, volumes have demonstrated significant variances, largely led by spot prices (see chart below).

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Iron ore quality differentials evolve as market fundamentals shift

May 23, 2018

Since January S&P Global Platts quality differentials for the gangue elements such as alumina, silica and phosphorous have evolved to reflect changing market fundamentals.
The alumina differential soared 100% from $1.50/dmt in January 2018 to $3.00/dmt in May 2018. Phosphorous has also seen large increases from a steady $1.30/dmt throughout the last quarter of 2017 to $2.50/dmt on May 18, where it has remained.
The most extreme moves have been seen across both silica differentials, but especially the high silica band of 6.5-9%, which collapsed from $7.00/dmt in January to $2.50/dmt today and is still on a downward trend despite a strong steel mill margin recorded to date.

 

A TIGHTENED SUPPLY
The recent fall in the silica discounts has been triggered by an adjustment in global supply.

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Exit the Dragon? New steel tariff could divert Chinese steel back to Asia

April 23, 2018

With new steel tariffs imposed by the US, Chinese and ASEAN steel is becoming more expensive in the US. While China contributes only 2% of finished steel entering the US, Chinese items made from steel and aluminium – along with countless “transiting metals” – are likely to take a far greater share.
In fact, China was the second-largest source of imports of steel and aluminum products into the US in 2017, second to Canada but above Mexico. Should a strong uptick in US domestic steel production fill the gap, Chinese steel may be forced to retreat from the US market, meaning around 1 million mt would be redirected to Asia.
A worst-case scenario would be the entire export surplus remaining in China, adding to already high domestic inventories and potentially having a bearish impact on

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Iron ore cost-effective for steel mills as price diverges from scrap

March 8, 2018

Some Chinese steel mills are responding to the strong domestic scrap price by switching back to using higher proportions of iron ore in the burden mix. An S&P Global Platts analysis of the relationship between iron ore and scrap prices shows that there has been a significant divergence for the first time since 2013. The fast-rising scrap market has outpaced iron ore prices, making iron ore the most cost-effective raw material for mills.
Based on the analysis, domestic scrap is statistically $31/mt overvalued, when compared with iron ore (using historical pricing data from May 2013 to February 2018).
Iron ore prices have diverged from scrap, suggesting scrap may currently be overvalued

The interplay of iron ore and steel scrap in China is seen as a barometer of the health of the two

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