China weekly: Steel prices decline tracking downtrend in SHFE futures

• China's steel exports rise y-o-y
  
  
• Steel inventories decline in late-May'24
  
  
• SHFE futures show downward trend
  
  

Chinese steel prices showed a mixed trend this week following the decline in SHFE futures. Domestic prices of HRC, rebar, iron ore and billets showed a downward trend. Prices of coking coal, however, inched up.

The China Iron and Steel Association (CISA) reported total steel inventory of key enterprises in late-May 2024 at 14.566 million tonnes (mnt), down by 2.2595 mnt or 13.43% compared to 16.826 mnt in mid-May.

The average daily crude steel output of CISA-affiliated mills stood at 2.1764 mnt in late-May 2024, a decrease of 1.49% against 2.209 mnt in mid-May. Moreover, output edged down by 1.1% m-o-m against 2.199 mnt in mid-April.

China's steel exports witnessed a growth of 15.3% y-o-y in May 2024, reaching 9.224 million tonnes (mnt) as compared to 8.36 mnt in May 2023, as per the General Administration of Customs. Moreover, export volumes went up by 5% m-o-m against 9.22 mnt in April 2024.

1. Iron ore spot prices drop $6/t w-o-w: The benchmark iron ore fines price declined sharply w-o-w by $6/t to $109/ t CFR China on 7 June as the market continued to be under pressure due to weak fundamentals. Trading activity improved as prices decreased. Mills are restocking at ports as needed and focusing more on obtaining cargo which kept port inventory high. A decline in downstream margins has resulted in decreased participation from end-users in the seaborne market.

Iron ore inventory at major Chinese ports rose by 1.8 mnt to 147.3 mnt on 6 Jun compared to last week according to SteelHome data.

a) Spot pellet premium inches up w-o-w: Spot pellet premium for Fe 65% grade pellets edged up by $ 0.5/t w-o-w at $12.50/t on 5 Jun.

b) Spot lump premium rises w-o-w: Spot lump premium increased by 0.04 at $0.1900/dmtu on 7 Jun'24.

2. Coking coal prices edge up: Coking coal prices picked by 6% w-o-w to $256.25/t FOB on 7th June'24. The prices picked on rising demand coupled with limited availability of July loading cargoes.

3. China's steel billet prices inch down w-o-w: Billet prices in Tangshan dropped significantly by RMB 80/t ($11/t) w-o-w to RMB 3,430/t ($473/t) on 7 June, 2024. Volatility in raw materials, finished steel prices, rebar futures throughout the week along with lower trades weighed on billet prices. Prices include 13% VAT. SHFE rebar futures (October, 2024 delivery) decreased by RMB 51/t ($7/t) w-o-w to RMB 3655/t ($504/t) on 7 June, 2024.

4.HRC prices fell by $8/t: Chinese HRC prices fell by RMB 60/t ($8/t) w-o-w to RMB 3,770/t ($520/t) for the week against RMB 3,830/t ($528/t), a week ago following the down trend in SHFE futures. SHFE futures (October contract) edged down RMB 12/t ($2/t) w-o-w to RMB 3,828/t ($528/t) as compared to RMB 3,840/t ($530/t) last week.

Moreover, HRC export offers declined by $10/t w-o-w to $530/t as compared to $540/t previous week. Chinese HRC exports sees sluggish trading activity due to weak demand from overseas buyers, who were hesitant to accept higher prices.

5.Rebar offers decline by $12/t: China's rebar offers declined by RMB 90/t ($12/t) w-o-w to RMB 3,720/t ($513/t) against RMB 3,810/t ($526/t) previous week, with fall in SHFE futures. SHFE futures (October contract) fell by RMB 53/t ($7/t) w-o-w to RMB 3,662/t ($505/t) as compared to RMB 3,715/t ($513/t), a week ago. Chinese rebar prices continued to drop due to lack of buying interest and bearish sentiments from buyer's end.

Outlook

The recent decline in China's steel prices is likely due to a sluggish economy and seasonal slowdown in construction activity. Steel demand has been weak all spring, and forecasts predict a further decline as summer weather disrupts construction projects. However, steel exports are picking up, and rising coking coal prices could provide some support to steel prices.