China weekly: Steel prices decline on weak demand, sharp fall in futures

Chinese steel prices declined this week on weak demand, adverse weather conditions and the continuous downtrend in steel futures. Heightened fears over waning demand for steel and a crisis in the property sector appear to be worsening steel prices.

Steel inventory at key Chinese mills stood at 18.04 mnt in early July, up 6.49% m-om, as per China Iron and Steel Association (CISA) data. The average daily crude steel output of CISA-affiliated mills was recorded at 2.07 mnt in early July.

In addition to the above, China's crude steel production fell by 3.3% y-o-y to 90.73 mnt in June. Production dropped 6% m-o-m compared with 96.61 mnt in May, according to National Bureau of Statistics (NBS) data. In H1CY'22, crude steel output decreased by 6.5% y-o-y to 526.88 mnt.

China's national absolute price index registered a decline of 7.5% w-o-w to RMB 4,209/t ($623/t) and a decrease of 26.6% on y-o-y basis, as per Lange Steel data.

Monthly export-import data:

i) Steel exports stood at 7.55 mnt in June, down 3% m-o-m against 7.76 mnt in May.
ii) Steel imports dropped 2% m-o-m to 790,000 t in June as against 810,000 t in the previous month.
iii) Iron ore imports were recorded at 88.97 mnt in June, down 4% m-o-m compared with 92.52 mnt in May.

Product wise sentiments:

1. Spot iron ore prices down on week: Chinese spot iron ore fines Fe 62% prices opened at $105.8/t CNF China and was assessed at $96.6/t towards the weekend. Seaborne iron ore prices trended down on continued weakness in steel demand and poor seaborne buying interest.

According to sources, mills are finding it more cost-effective to sell expensive or quality iron ore products from long-term contract cargoes and buy them in smaller quantities at portside.

Iron ore inventory at major Chinese ports stood at 130.6 mnt this week, up 2.3 mnt from 128.3 mnt a week ago, as per SteelHome data.

a) Spot pellet premium down w-o-w: Spot pellet premium for Fe 65% grade pellets was assessed at $29.1/t, down from $29.65/t last week.

b) Spot lump premium down w-o-w: Spot lump premium stood at $0.1000/dmtu, down $0.1050/dmtu from last week.

Lump premiums fell slightly on lack of buying interest.

2. Coking coal prices fall w-o-w: Coking coal prices fell by $20/t w-o-w to $238/t FOB Australia as against $258/t a week ago. The decline stems from weak steel market sentiments in Asia despite the possibility that heavy rains in Australia might impact supplies.

3. China's billet prices slump towards weekend: Steel billet prices in China's Tangshan witnessed a sharp fall of RMB 520/t ($77/t) w-o-w following a decline in rebar futures. Prices stood at RMB 3,400/t ($503/t), inclusive of 13% VAT, on 15 July. According to SteelMint data, the SHFE rebar futures contract for October 2022 delivery closed at RMB 3,589/t ($531/t) on 15 July, falling sharply by RMB 607/t ($90/t) w-o-w.

4. HRC export offers plunge $42/t w-o-w: China's HRC (SS400) export offers plunged $42/t w-o-w to $618/t FOB compared with $660/t a week back.

Weak demand weighed on market sentiments coupled with a sharp fall in HRC futures, pushing prices down by RMB 550/t ($81/t) to RMB 3,610/t ($534/t) in northern China as against RMB 4,160/t ($616/t) last week.

SHFE HRC futures contract for October delivery fell by RMB 550/t ($81/t) w-o-w to RMB 3,667/t ($543/t) on 15 July.

In addition, HRC stocks rose 3% w-o-w to 2.75 mnt on 15 July against 2.67 mnt last week, as per Lange Steel data.

China's Baosteel has slashed monthly HRC, CRC and heavy plate prices by RMB 200/t ($30/t) for August sales on the back of subdued domestic demand amidst a seasonal lull and resurgence in COVID-19 infections.

5. Domestic rebar prices drop w-o-w: Domestic rebar prices dropped RMB 220/t ($33/t) to RMB 3,990/t ($590/t) in western China against RMB 4,210/t ($623/t) a week ago. Price fell due to unfavourable weather conditions in some parts of China resulting in slowing down of construction activities.

6. Shagang Steel rolls over long steel prices: China's Shagang Steel rolled over long steel products prices for mid-July sales. Effective prices:

• Rebar(16-25mm): RMB 4,800/t ($710/t)
  
  
• Wire rods (6-10 mm): RMB 4,810/t ($712/t)
  
  
• Coiled rebar (8-10 mm): RMB 4,900/t ($725/t)
  
  

All prices are on ex-mill basis, including VAT.

7. Shagang Steel cuts scrap purchase prices: Shagang lowered scrap prices by RMB 150/t ($22/t) for all grades from 15 July. Post revision, prices of HMS (6-10mm) stand at RMB 2,770/t ($410/t) delivered to headquarters, including 13% VAT.