China weekly: Domestic prices decline w-o-w amid falling seasonal demand

Chinese domestic steel prices declined w-o-w, pressured by falling raw material costs, weak demand, and sinking SHFE futures. HRC, Rebar, coking coal, iron ore, and billets all saw price declines, while HRC export offers remained unchanged.

The China Iron and Steel Industry Association reported steel inventory of key steel enterprises in early-December 2023 at 14.106 million tonnes (mnt), an increase of 1.143 mnt or 8.82% against 12.963 mnt in late-November 2023.

The average daily crude steel output of CISA-affiliated mills stood at 1.932 mnt in early-December 2023, down by 4.19% from 2.016 mnt in mid-November 2023.

Product-wise sentiments

1. Iron ore spot prices down w-o-w: The benchmark Fe 62% fines index decreased by $1.8/t w-o-w to $135.6/t CFR China on 15 December. Iron ore prices decreased following the limited trading activity. As per reports, to reduce costs, steel mills are adapting their usage of different sintering blends, giving priority to more economically efficient options because of their increased flexibility, while still maintaining enough iron ore stocks for two to three days of production. The market confidence was impacted by the China Annual Economic Work Conference's absence of stimulus signals for the economy in CY'24.

Iron ore inventory at major Chinese ports increased by 0.3 mnt stable at 113.6 mnt on 14 December compared to the previous week, according to SteelHome data.

a) Spot pellet premium largely stable w-o-w: Spot pellet premium for Fe 65% grade pellets inched down by $0.2/t w-o-w at $17.5/t on 13 December.

b) Spot lump premium fall w-o-w: Spot lump premium fell by 0.0115 w-o-w at $0.1650/dmtu on 15 December.

2. Coking coal prices drop w-o-w: Coking coal prices dropped by 4% w-o-w to $320/t FOB on 16 December 2023 amid low buying interest.

3. Chinese billet prices fall w-o-w: Chinese billet prices fell by RMB 80/t ($11/t) to RMB 3,630/t ($511/t) on 15 December against 8 December levels. Subdued rebar futures, fall in finished steel prices and weak demand due to the winter season weighed on billet prices. Chinese SHFE rebar futures dropped by RMB 127/t (18/t) w-o-w to RMB 3,915/t ($551/t) today.

4. Domestic HRC prices fell w-o-w: Domestic hot-rolled coil (HRC) prices fell by RMB 70/t ($10/t) w-o-w to RMB 3,960/t ($559/t) this week as compared to RMB 4,030/t ($569/t) in the previous week. The recent decline in SHFE futures contracts, coupled with lower-than-anticipated demand, led to a drop in domestic steel prices. The SHFE HRC futures (May contract) dropped by RMB 94/t ($13/t) w-o-w to RMB 4,047/t ($571/t) on 15 December as against RMB 4,141/t ($585/t) a week ago.

However, despite market fluctuations, Chinese HRC export offers held steady, continuing at the same levels of $575/t as last week. Cautious buyers held back ahead of the approaching Chinese holidays.

5. Rebar prices drop w-o-w: Chinese rebar prices dropped by RMB 50/t ($7/t) w-o-w to RMB 3,890/t ($549/t) as against RMB 3,940/t ($556/t) a week ago. SHFE rebar futures (May contract) settled at RMB 3,932/t ($555/t) on 15 December, down RMB 103/t ($15/t) against RMB 4,035/t ($570/t) a week ago. As China enters the winter season, construction activity typically slows down, leading to reduced demand for rebar.

6. Baosteel raises HRC prices: The world's top steelmaker Baosteel has increased HRC and thick plates prices for January, 2024 sales by RMB 200/t ($28/t) m-o-m, sources informed SteelMint. In addition, the political bureau meeting held on 8 December, 2023 emphasized on expanding domestic demand.

7. Shagang Steel rolls over steel prices: China's Shagang Steel has rolled over rebar, wire rod, and coiled rebar prices for mid-December, 2023 sales. Effective prices-

• Rebar (16-25 mm): RMB 4,250/t ($592/t)
  
  
• Wire rod (6-10 mm): RMB 4,340/t ($604/t)
  
  
• Coiled rebar (8-10 mm): RMB 4,430/t ($617/t)
  
  
• All prices are ex-mill, including VAT. Revised prices are effective from 11 Dec'23.
  
  

Outlook: The approaching deep winter traditionally brings a freeze on construction activity, and this December is no different. Already facing a decline in the manufacturing sector, the demand for steel could face further pressure in the near future.