China weekly: Steel prices drop amid downtrend in SHFE futures

Steel prices in China fell w-o-w amid decline in Shanghai Futures Exchange (SHFE) futures. The prices of HRC, rebar, coking coal, iron ore and billet have shown downward trend due to climatic conditions. Whereas, HRC export has shown an upward trend.

Product-wise sentiments

1.Iron ore spot prices decline w-o-w: The benchmark Fe 62% fines index fell by $9/t to $131/t CFR China on 12 January due to anticipated high liquidity in the Chinese economy. Prices fell amid the maintenance shutdown of steel mills due to lower demand and poor steel margins. As per reports, mills had started using a combination of high and low-grade materials in blast furnaces due to poor steel margin. The steel mills' winter restocking is all but over. Cargo with laycan in mid- to late-February will have a more advantageous market.

Iron ore inventory at major Chinese ports increased by 4.3 mnt to 120.3 mnt on 11 January compared to the previous week, according to SteelHome data.

a) Spot pellet premium stable w-o-w: Spot pellet premium for Fe 65% grade pellets remained stable w-o-w at $15/t on 10 January.

b) Spot lump premium inches up w-o-w: Spot lump premium increased marginally by 0.015 w-o-w to $0.185/dmtu on 12 January.

2. Coking coal prices fall w-o-w: Coking coal prices fell by 2% w-o-w to $338/t FOB on 13 January 2024 amid rising demand from India.

3. Chinese billet prices fall w-o-w amid bearish market sentiments: Chinese billet prices decreased by RMB 60/t ($8/t) w-o-w to RMB 3,600/t ($506/t) on 12 January, 2024. Volatile sentiments from rebar futures, finished steel and raw material prices have put pressure on billet prices. Meanwhile, Chinese SHFE rebar futures fell by RMB 77/t ($11/t) w-o-w to RMB 3,902/t ($589/t) on 12 January, 2024.

4.Domestic HRC prices decrease w-o-w: Domestic hot-rolled coil (HRC) price decreased by RMB 30/t ($4/t) w-o-w to RMB 3,970/t ($557/t) this week as compared to RMB 4,000/t ($562/t) in the previous week. HRC prices slipped this week as winter demand and mills kept production high. The SHFE HRC futures (May contract) declined by RMB 88/t ($12) w-o-w to RMB 4,018/t ($564/t) on 11 January. Moreover, However, Chinese HRC export offers increased by $5/t w-o-w to $580/t, due to supportive global sentiments.

5.Rebar prices edged down w-o-w: Chinese rebar prices edged down by RMB 30/t ($4/t) w-o-w to RMB 3,870/t ($544/t) as against RMB 3,900/t ($548/t) a week ago. SHFE rebar futures (May contract) fell by RMB 104t ($15/t) w-o-w to RMB 3,907/t ($548/t) on 11 January. Winter months typically see a slowdown in construction activity due to weather conditions, leading to lower demand for rebar. Despite weak demand, some steel mills maintained high production rates, potentially due to existing contracts or cost considerations. This excess supply contributed to downward pressure on prices.

6.Baosteel kept sales prices flat: Baosteel kept prices unchanged for February 2,o24 sales, after raising prices for hot-rolled coil (HRC) in December, 2023 and January 2o24, according to SteelMint sources. In addition, thick plate prices also remained unchanged m-o-m. Citing subdued domestic activity and a softening market for HRC both domestically and internationally, the company has chosen to hold prices steady.

Outlook

The Chinese steel market is expected to remain subdued in the near term due to winter and economic uncertainty. This will likely lead to continued downward pressure on steel prices. Iron ore prices may see some recovery later in February, while coking coal prices are expected to remain stable. Global steel sentiment may offer some support to Chinese steel exports, but domestic demand is likely to remain weak.