China: Dual trends may keep steel market volatile in Dec

• Expectations from policy measures increase
  
  
• Raw material costs stay firm, support prices
  
  
• Stronger macro policies expected in 2025
  
  

Morning Brief: The US Presidential election results in November 2024, a consequent appreciation of the dollar and expected apprehensions of further changes in trade dynamics caused some disruptions in China's steel market. Since supply continued to outstrip demand and the support received from the September and November stimulus packages started easing, steel prices began fluctuating downwards.

The national steel index, as of end-November was at RMB 3,711/tonne ($511/t), down RMB 75/t ($10/t) or 2% m-o-m, and y-o-y by 12.8%. The monthly average national comprehensive steel price in November was at RMB 3,753/t ($516/t), down RMB 138/t ($19/t) or 3.5% m-o-m.

Tangshan's benchmark HRC prices, available with BigMint, remained flat m-o-m in November at RMB 3,610/t ($496/t) while rebars fell 3% to RMB 3,260/t ($448/t).

December duality

Looking ahead to December, certain opposing factors may come into play. As global economic uncertainty increases, market expectations of announcements of more domestic policies will gain ground which can keep prices supported. With the arrival of the off-season in winter, possibly production cuts will ease supply-demand mismatches. However, with raw materials being firm, the current cost support to steel prices will remain firm. Thus, the Chinese domestic steel market in December 2024 may show a volatile trend.

Factors that will support volatility in domestic steel market in Dec'24

Will major economies opt for further interest cuts?: Major global economies are open to further interest rate cuts, a move this will support commodity prices.

For instance, on 7 November, the US Federal Reserve announced a 25 basis point cut in the benchmark interest rate, lowering the target range from 4.75-5% to 4.5-4.75%. This is the second rate cut by Fed this year after a 50 basis point cut in September, and the second since March 2020, indicating that the US monetary policy has entered an easing phase. Subsequently, the Bank of England declared a 25 basis point cut in the benchmark interest rate to 4.75%. The Swedish Central Bank cut its interest rate by 50 basis points for the first time in a decade.

According to CME's "Fed Watch", the probability that the Fed will retain the current interest rate unchanged till December is 37.2%, and that of a cumulative 25 basis point cut is 62.8%, tipping the scale in favour of the latter.

Expectations from macro-economic policies rise: The Chinese economy is undergoing a critical period of policy changes in a bid to boost the economy. With the accelerated implementation of various existing policies and the intensified launch of additional packages, major economic indicators rebounded significantly in October. Since November, the country has unveiled a series of initiatives to resolve the issue of large-scale hidden debts, which will help local governments reduce their own burdens and free up their hands to promote development and welfare measures.

Raw material prices remain firm: In November, average prices of iron ore remained stable. In end-November, the average price of 66% dry iron ore concentrate in Tangshan was at RMB 969/t ($133/t) down RMB 11/t ($2/t) m-o-m. In terms of imported iron ore, the 62% fines from Australia at Rizhao Port was at RMB 766/t ($105/t), stable m-o-m.

Domestic coke in Tangshan averaged RMB 1,692/t ($233/t), down RMB 74/t ($10/t) m-o-m. Heavy scrap in Tangshan hovered at RMB 2,263/t ($311/t), up RMB 19/t ($3/t) m-o-m. Ordinary carbon billets, excluding tax, dipped by a RMB 6/t ($1/t), down a negligible 0.2% m-o-m. Thus, average monthly prices levels did not change much, giving enough cost support to steel prices.

Outlook

The Central Economic Work Conference will be held in mid-December. The conference is expected to continue to set a positive tone for next year's macro-economic policies for combating external shocks and uncertainties. There is no doubt that China will strengthen is macro-economic policies in 2025 in a bid to address current domestic and overseas problems, risks and challenges and to prep up the path for future growth.

Thus, stronger policy expectations and the continued raw material cost support may keep the domestic steel market stronger in December.

However, December is also the traditional off-season for steel, and thus there is always the downside risks of shrinking demand and thin winter restocking to be considered.