China weekly: Steel prices continue to fall on soft demand

• Chinese crude steel output decreases in H1
  
  
• China's steel exports remains stable
  
  

Steel prices in China fell this week, following a similar trend in contracts traded on the Shanghai Futures Exchange (SHFE). This drop affected domestic prices of steel like hot-rolled coil (HRC) and rebar. The decline extended to raw materials as well, with iron ore, billet, and coking coal prices all falling compared to last week.

China's crude steel production in January-June 2024 (H1) fell slightly by 1.1% y-o-y to 530.57 million tonnes (mnt) against 538.28 mnt in same period of last year, as per National Bureau of Statistics. However, the same inched down 1% m-o-m to 91.61 mnt against 92.86 mnt a month ago.

China Iron and Steel Association (CISA) reported total steel inventory of key enterprises in early-July 2024 at 15.402 million tonnes (mnt), up by 708,000 tonnes (t) or 4.82% compared to 14.694 mnt in late-June. The average daily crude steel output of CISA-affiliated mills stood at 2.151 mnt in early-July 2024, a decrease of 0.73% against 2.168 mnt in late-June.

1.Iron ore spot prices drop by $4/t w-o-w: The benchmark iron ore fines price dipped w-o-w by $4/t to $104/ t CFR China on 19 July amid slow trading activity. The price drop was due to weak sentiment and a lack of incentives from the Third Plenum, leading to a further decline in economic expectations. No positive economic news from China this week has eroded market confidence. Some steel mills have already started reducing production to balance margins. As per reports, some mills were reducing production and opted for maintenance following lower steel demand.

Iron ore inventory at major Chinese ports decreased by 0.6 mnt to 149.6 mnt on 18 July compared to last week, according to SteelHome data.

a) Spot pellet premium rises w-o-w: Spot pellet premium for Fe 65% grade pellets increased by $ 0.3/t w-o-w to $16.30/t CFR China on 17 July.

b) Spot lump premium falls w-o-w: Spot lump premium decreased by $0.0028/dmtu at $0.1997/dmtu on 19 July.

2.Coking coal prices decline w-o-w: Coking coal prices fell by 7% w-o-w to $230/t FOB on 19 July. Prices fell on slow demand, with traders facing increasing pressure to lower their offers amidst an oversupply.

3. Chinese billet prices inch down w-o-w: Billet prices in Tangshan fell by RMB 20/t ($2/t) w-o-w to RMB 3,270/t ($450/t) on 19 July. Weaker demand and volatility in raw materials, finished steel prices, rebar futures throughout the week weighed on billet prices. Prices include 13% VAT. SHFE rebar futures (October, 2024 delivery) declined by RMB 44/t ($6/t) w-o-w to RMB 3,479/t ($479/t) on 19 July, 2024.

4.China's HRC offers dip: Chinese HRC offers dipped RMB 40/t ($6/t) w-o-w to RMB 3,600/t ($495/t) against RMB 3,640/t ($501/t) last week. This decline is attributed to a fall in SHFE HRC futures. SHFE HRC futures (October contract) plunged RMB 43/t ($6/t) w-o-w amid typically weak demand during this time of year to RMB 3,661/t ($504/t) compared to RMB 3,704 ($510/t) last week.

However, China's HRC export prices remained stable for the week at $510/t. Chinese steel mills held their export offers due to the recent downtrend in both domestic spot and futures prices of HRC.

5.China's rebar offers decrease: Chinese rebar offers fell slightly by RMB 20/t ($3/t) w-o-w to RMB 3,540/t ($487/t) compared to RMB 3,560/t ($490/t) a week back. SHFE rebar futures (October contract) decreased by RMB 45/t ($6/t) w-o-w to RMB 3,474/t ($478/t) against RMB 3,519/t ($484/t) last week.

Chinese steel mills are adopting new rebar standards, GB 1499.1-2024 and GB 1499.2-2024, for hot-rolled plain and ribbed steel bars, which were released on 25 June. These standards take effect from 25 September. To manage the switch, warehouses are encouraging customers to use existing stocks before that date. This shift is causing some price instability in eastern China due to higher stock levels, while northern China might see less impact due to a more balanced demand-supply situation. Overall, the market expects some price fluctuations until it adjusts to the new standards.

Outlook

The short-term outlook for steel prices in China leans towards a slight decline due to weakening demand and falling raw material prices. However, stable export prices and potential future supply constraints could offer some support. The switch to new rebar standards might cause temporary price fluctuations in eastern China, impacting the overall market.