China weekly: Steel prices decline amid weak domestic demand

Chinese steel prices witnessed a weekly decline amid weak domestic demand due to turbulent weather and heavy rains. Domestic demand has decreased triggering a shift in market outlook. However, market participants are expecting production cuts in China. Moreover, steel futures (October contract) on the Shanghai Futures Exchange dropped as well.

Product-wise sentiments

1.Iron ore spot prices stable w-o-w: Chinese iron ore fines (Fe 62%) prices stood at $105.1/t CNF China on 11 August, stable w-o-w as against $105.05/t last week. Mixed sentiments were seen this week in the seaborne iron ore market amid lack of clarity about China's steel production cuts.

According to SteelHome data, iron ore inventory at major Chinese ports decreased sharply by 4 million tonnes (mnt) to 116.5 mnt on 10 August compared to the previous week. This is the lowest level of iron ore inventory in the last three years, as these levels were last seen in July 2020.

a) Spot pellet premium rises w-o-w: The spot pellet premium for Fe 65% grade pellets increased by $0.25/t w-o-w to $17.9/t on 10 August.

b) Spot lump premium rises: The spot lump premium inched up by $0.0110 w-o-w to $0.1520/dmtu on 11 August.

2. Coking coal prices rise: Coking coal prices rose by 2% w-o-w to $251/t FOB on 11 August amid increase in demand from China.

3. Chinese billet prices fall on weak market sentiments: Billet prices in China's Tangshan witnessed a w-o-w drop of RMB 60/t ($8/t) to RMB 3,520/t ($486/t), including 13% VAT, on 11 August. Weak demand, volatility in rebar futures and finished steel prices weighed on billet prices. China's SHFE rebar futures stood at RMB 3,691/t ($510/t), a fall of RMB 45/t ($6/t), w-o-w on 11 August.

4. Domestic HRC prices drop: Baosteel, China's largest steelmaker, has raised hot-rolled coil (HRC) prices for the second consecutive month by RMB 100/t ($14/t) m-o-m for September sales. However, domestic HRC prices fell by RMB 70/t ($10/t) w-o-w to RMB 3,910/t ($543/t) against RMB 3,980/t ($553/t) last week. Domestic demand remained subdued due to adverse weather conditions. The government has announced a raft of stimulus measures in late July. The settled price of SHFE HRC futures (October contract) decreased by RMB 99/t ($14/t) w-o-w to RMB 3,920/t ($545/t) on 11 August as against RMB 4,019/t ($558/t) last week.

China's HRC export offers also fell by $13/t w-o-w to $570/t FOB Rizhao as against $583/t FOB last week. The extended decline in SHFE HRC prices has instilled caution in market participants.

5. Rebar prices edge down: Chinese rebar prices edged down by RMB 60/t ($8/t) w-o-w to RMB 3,630/t ($504/t) on 11 August against RMB 3,690/t ($513/t) a week ago. SHFE rebar futures (October contract) settled at RMB 3,672/t ($510/t) on 11 August, down RMB 80/t ($11/t) against RMB 3,752/t ($521/t) a week ago. Domestic rebar prices decreased amid typhoon disruption and bearish market sentiment which dampened demand.

Outlook: The Chinese steel market is expected to remain volatile in the coming week. Prices may fall further if demand remains weak and production continues to rise. However, if the government takes measures to stimulate the economy, prices may rebound.