China weekly: Steel prices decrease amid low trade activities post-Dragon Boat festival

• Steel inventories increase in early-Jun'24
  
  
• SHFE futures show downward trend
  
  

Chinese steel prices showed downtrend this week following the decline in SHFE futures. Domestic prices of HRC, rebar, iron ore and billets showed a downfall. However, prices of coking coal remained stable. Chinese steel exports remained slow amid weaker global market demand.

The China Iron and Steel Association (CISA) reported total steel inventory of key enterprises in early-June 2024 at 16.086 million tonnes (mnt), up by 1.519 mnt or 10.43% compared to 14.566 mnt in late-May. The average daily crude steel output of CISA-affiliated mills stood at 2.248 mnt in early-June 2024, an increase of 3.31% against 2.176 mnt in late-May.

1.Iron ore spot prices range-bound w-o-w: The benchmark iron ore fines prices inched down w-o-w by $1/t to $108/ t CFR China on 14 June 2024 following weak market fundamentals at the beginning of the week post-Dragon Boat festival. The primary market factors are intensified production restrictions, energy-saving efforts, and carbon reduction, resulting in low market sentiment. Mills are adjusting purchases based on production margins. The upcoming rainy season will significantly impact transportation and outdoor construction. Iron ore inventory at major Chinese ports fell by 0.7 mnt to 146.6 mnt on 13 June compared to the last week according to SteelHome data.

a) Spot pellet premium rises w-o-w: Spot pellet premium for Fe 65% grade pellets increased by $ 1.15/t w-o-w to $13.65/t CFR China on 12 June.

b) Spot lump premium up w-o-w: Spot lump premium increased by 0.02 to $0.2100/dmtu on 14 June.

2.Coking coal prices remain stable: Coking coal prices remained majorly stable w-o-w at $256.50/t FOB on 14 June, 2024. Prices remain unchanged on thin trading activities.

3.Chinese billet prices under pressure amid weak market sentiments: Billet prices in Tangshan dropped by RMB 30/t ($4/t) w-o-w to RMB 3,400/t ($469/t) on 14 June, 2024. Lower trades, volatility in raw materials, finished steel prices and rebar futures throughout the week have weighed on billet prices. Prices include 13% VAT. SHFE rebar futures (October, 2024 delivery) decreased by RMB 18/t ($2/t) w-o-w to RMB 3,637/t ($501/t) on 14 June, 2024.

4.HRC prices edge down by $3/t: Chinese HRC prices edged down by RMB 20/t ($3/t) w-o-w to RMB 3,750/t ($517/t) for the week against RMB 3,770/t ($520/t), a week ago following the downtrend in SHFE futures. SHFE futures (October contract) inched down by RMB 24/t ($3/t) w-o-w to RMB 3,804/t ($524/t) as compared to RMB 3,828/t ($528/t) last week. Moreover, HRC export offers decreased by $5/t w-o-w to $525/t as compared to $530/t previous week.

Chinese hot-rolled coil (HRC) prices fell due to a weakening expectation for a US interest rate cut and concerns over slowing seasonal steel demand in China. This decline followed losses in long steel product rebar and key steelmaking raw materials like iron ore and met coke on the first trading day after the Dragon Boat festival holiday.

5.Rebar offers decrease by $3/t: China's rebar offers slightly decreased by RMB 20/t ($3/t) w-o-w to RMB 3,700/t ($510/t) against RMB 3,720/t ($513/t) in the previous week, with fall in SHFE futures. SHFE futures (October contract) edged down by RMB 22/t ($3/t) w-o-w to RMB 3,640/t ($502/t) as compared to RMB 3,662/t ($505/t), a week ago.

Rebar demand from end-users remained sluggish during the Dragon Boat festival from 8-10 June as trading houses held off on restocking inventories over the holiday. Moreover, unfavourable weather conditions, including high temperatures in northern China and heavy rains in eastern and southern regions, dampened construction activity contributing in weakened demand. Additionally, lower prices in the futures market further discouraged buying activity.

World's top steelmaker, Baosteel, has kept HRC prices stable for July, 2024 sales, after increasing in June, 2024. Moreover, hot-dip galvanised prices also remained unchanged. The company rolled over prices due to slow market demand, while, buyers are cautious ahead of summer in China.

Outlook

Steel prices are expected to remain under pressure due to rising inventories, weak demand, and declining futures prices. Moreover, slowdown in the global economy could further weaken demand for steel. Traditionally, steel demand weakens during summer in China. However, the extent of this decline will depend on construction activity levels.