China weekly: Steel prices continue to decline on weak market sentiment

• SHFE futures continue downtrend
  
  
• China's HRC export offers fall
  
  

China's steel prices extended their downward trend this week, as declining Shanghai Futures Exchange contracts pulled prices lower. Key steel products, including hot-rolled coil and rebar, witnessed price declines. While raw material prices showed mixed movement, billet and coal prices decreased. However, iron ore prices increased.

1.Iron ore spot prices rise $2/t w-o-w: The benchmark iron ore fines price increased w-o-w by $2/t to $104/ t CFR China on 2 Aug'24 amid fresh trading activity and expectations of a slightly stronger market. The reduction in production by steel mills has affected spot demand leading to decreased procurement volumes. As per reports, the market outlook was bolstered by better-than-expected economic data from the US where Q2CY'24 GDP growth was reported at 2.8%, surpassing the previous quarter's 1.4%.

Iron ore inventory at major Chinese ports inched down by 0.1 mnt to 151.7 mnt on 1 August compared to last week, according to SteelHome data.

a) Spot pellet premium remain stable w-o-w: Spot pellet premium for Fe 65% grade pellets remained largely stable w-o-w at $16.30/t CFR China on 31 July.

b) Spot lump premium stable w-o-w: Spot lump premium remained stable at $0.1685/dmtu on 2 August.

2.Coking coal prices decline w-o-w: Coking coal prices fell by $3/t w-o-w to $215/t FOB on 2 August. This was due to sufficient material availability and trades taking place at lower levels.

3.Chinese billet prices decline w-o-w: Billet prices in Tangshan fell by RMB 40/t ($6/t) w-o-w to RMB 3,140/t ($439t) on 2 August. Prices include 13% VAT. Lower demand, volatility in raw materials, and finished steel prices throughout the week kept billet prices under pressure. However, SHFE rebar futures (October, 2024 delivery) inched up by RMB 8/t ($1/t) w-o-w to RMB 3,379/t ($472/t) on 2 August, 2024.

4.Domestic HRC offers decline w-o-w: Chinese HRC offers dipped by RMB 50/t ($7/t) w-o-w to RMB 3,460/t ($483/t) as of RMB 3,510/t ($490/t) a week ago, following the SHFE HRC futures (October contract) prices downtrend. SHFE HRC futures went down by RMB 65/t ($9/t) w-o-w to RMB 3,501/t ($489/t) against RMB 3,566/t ($498/t) last week.

Chinese HRC export prices fell w-o-w following a decline in domestic spot and SHFE prices. The export prices decreased by $5/t w-o-w to $495/t as compared to $500/t previous week.

5. Domestic rebar offers fall w-o-w: Chinese domestic rebar offers dropped by RMB 70/t ($10/t) w-o-w to RMB 3,330/t ($465/t) against RMB 3,400/t ($475/t) a week ago. SHFE rebar futures (October contract) inched down by RMB 23/t ($3/t) w-o-w to RMB 3,353/t ($468/t) as compared to RMB 3,376/t ($472/t) last week. The rebar prices are declining amid weakened demand for construction raw materials.

China's Shagang Steel has reduced long steel prices by RMB 150/t ($21/t) for early-Aug'24 sales. Effective prices:

• Rebar (16-25 mm): RMB 3,620/t ($500/t)
  
  
• Wire rod (6-10 mm): RMB 3,570/t ($493/t)
  
  
• Coiled rebar (8-10 mm): RMB 3,660/t ($505/t)
  
  
• All prices are ex-mill, including VAT.
  
  

Outlook

Chinese steel prices are expected to remain low in the coming months due to low seasonal demand. Any upward price movement in the short term will hinge on the extent to which Chinese steel mills reduce production in response to squeezed profit margins. These margins have been squeezed by recent price declines triggered by the implementation of new national rebar standards.