China weekly: Steel prices down w-o-w despite govt stimulus

This week, Chinese finished steel prices dropped further over weak demand despite the government's measures to stabilise the economy. This marks the fifth consecutive week of decline in the finished steel prices. Furthermore, volatility in ferrous futures markets kept weighing on market sentiments.

Product-wise sentiments

1. China spot iron ore prices inch down on week: Chinese spot iron ore fines Fe 62% prices opened at $135.95/t CNF China for the week and were assessed at $134.45/t, CNF China towards the weekend. Seaborne iron ore prices fell as weak steel demand and poor margins continued to dampen the iron ore outlook.

After seeing an increase in finished steel inventories at mills, market participants adopted a wait-and-see strategy for the seaborne market.

Iron ore inventory at major Chinese ports stood at 137.25 million tonnes (mnt) this week, decreasing by 4.5 mnt as against 141.75 mnt a week ago, as per data maintained by SteelHome.

a) Spot pellet premium stable w-o-w: Spot pellet premium for Fe 65% grade pellets was assessed at $39.85/t, more stable compared to last week.

b) Spot lump premium decrease w-o-w: The spot lump premium stood at $0.3405/dmtu, decreasing by $0.3445/dmtu w-o-w. Expectations of weaker demand in the wet season in China weighed on the seaborne lump premiums.

2. Coking coal prices plunge $60/t w-o-w: The Australian coking coal prices fell by $60/t this week amid sluggish steel demand in Asian countries. The latest prices for the same on 28 May 2022 was assessed at $465/t FOB Australia in contrast with $525/t FOB last week.

3. Shagang scrap purchase prices fall to 2-month low: China's leading electric arc furnace (EAF) steelmaker, the Jiangsu Shagang Group, cut its scrap purchase prices for the third time in May 2022. The steelmaker reduced its scrap procurement prices by RMB 100/tonne (t) ($15/t), for all grades with immediate effect, sources confirmed. With this, Shagang's scrap purchase prices fell to a two-month low.

4. China's billet prices fall towards weekend: Steel billet prices in China's Tangshan witnessed a fall of RMB 60/t ($9/t) w-o-w. Prices stood at RMB 4,450/t ($664/t), inclusive of 13% VAT, on 27 May. According to data maintained with SteelMint, the SHFE rebar futures contract for October 2022 delivery was closed at RMB 4,576/t ($682/t) on 27 May, witnessing a fall of RMB 62/t ($9/t) w-o-w. However, prices rose by RMB 71/t ($10/t) d-o-d.

5. HRC export offers plunge $21/t w-o-w: China's HRC export offers stood at $789/t FOB China, down by $21/t in contrast with $810/t FOB in the previous week. Export offers registered a decline due to bid-offer disparities as overseas buyers are expecting prices to fall further in the near term.

In the domestic market too, HRCs were being traded lower at RMB 4,760-4,780/t ($711-714/t) eastern China, down RMB 60/t ($9/t) from RMB 4,820-4,840/t ($720-723/t) eastern China a week ago. Despite several measures adopted by Beijing to stabilise the economy to normalcy, demand for steel continued to remain subdued and traders reported of higher inventories, which hindered demand stimulation. For instance, China's HRC inventory rose by 2% w-o-w to 2.44 mnt on 27 May 2022 as against 2.39 mnt a week ago, as per Lange Steel data maintained by SteelMint.

6. Domestic rebar prices down by up to RMB 80/t ($12/t) w-o-w: China's domestic rebar prices dropped by RMB 70-80/t ($10-12/t) to RMB 4,680-4,710/t ($699-703/t) northern China in comparison to RMB 4,750-4,790/t ($709-715/t) northern China a week ago. The government's measures to investigate the rise in coal prices and production resulted in bearish sentiments and led to a drop in ferrous futures market. Moreover, downstream demand for rebars from the construction sector remained weak besides logistical issues amid Covid outbreaks.