China weekly: Steel prices drop amid uncertainty over government stimulus

• Crude steel inventory edges up
  
  
• Steel exports surge to record high
  
  

China's steel market trended down this week, as prices of major products fluctuated amid sluggish demand. Iron ore prices decreased due to the government's housing stimulus falling short of expectations, and coking coal prices also declined. Steel products, including billets, hot-rolled coils (HRC), and rebar, experienced price reductions, reflecting a weaker market outlook and a drop in futures prices.

The average daily crude steel output of CISA-affiliated mills stood at 2.049 million tonnes (mnt) in early October 2024, an increase of 1.7% from 2.014 mnt in late September 2024. CISA reported that the total steel inventory at key enterprises reached 14.73 mnt in early October 2024. This represents a rise of 3.2% or 450,000 tonnes (t) from 14.28 mnt in late September 2024.

China's steel exports rose sharply by 25.9% to 10.153 mnt in September 2024 from 8.06 mnt in September 2023. China's steel exports hit a new milestone, surpassing 10 mnt in a single month for the first time in eight years, as per data from the General Administration of Customs. Additionally, the export volume saw an increase of 7% m-o-m against 9.49 mnt in August 2024.

China's crude steel production dropped for the fourth consecutive month, to 77.07 mnt in September 2024 against 77.92 mnt in August 2024, a downward correction of 1.1%. Y-o-y, output declined by 6.1% against 82.11 mnt in September 2023, according to data from the National Bureau of Statistics.

1. Iron ore spot prices drop by $5/t: The benchmark iron ore fines price sharply fell by $5/t w-o-w to $101/t CFR China on 18 October 2024 amid weak market sentiment, driven by an underwhelming housing sector stimulus and sluggish trades. On Thursday, the government announced plans to expand the "whitelist" of housing projects and increase bank lending to RMB 4 trillion. However, these measures failed to meet market expectations, leading to declining iron ore prices. Volatility in the futures market further contributed to uncertainty, prompting traders to adopt a wait-and-watch strategy, which suppressed liquidity and weighed on both seaborne and port stock prices.

Iron ore inventories at China's major ports increased by 1.35 mnt to 147.15 mnt on 17 October compared to last week, according to SteelHome data.

a) Spot pellet premiums remain largely stable: Spot pellet premium for Fe 65% grade pellets inched up by $0.10/t w-o-w to $16.70/t CFR China on 16 October.

b) Spot lump premiums up: Spot lump premiums edged up by a tiny $0.004/dmtu w-o-w to $0.1400/dmtu on 18 October.

2. Coking coal prices decline: Coking coal prices fell by 2% w-o-w to $202/t FOB Australia.

3. China billet prices fall sharply amid bearish market sentiments: Billet prices in Tangshan fell by RMB 130/t ($18/t) w-o-w to RMB 3,070/t ($432/t) on 18 October. Prices include 13% VAT. Fluctuations in raw material and finished steel prices, volatile rebar futures, and weak market fundamentals throughout the week weighed on billet prices. Meanwhile, Shanghai Futures Exchange (SHFE) rebar futures (January 2025 delivery) dropped by INR 132/t ($19/t) to RMB 3,336/t ($470/t) on 18 October against 11 October.

4. Domestic HRC prices decline: China's HRC offers declined by RMB 110/t ($15/t) to RMB 3,410/t ($480/t) as compared to RMB 3,520/t ($496/t) a week ago, following the downtrend in SHFE futures. SHFE HRC futures (January 2025 contract) fell by RMB 114/t ($16/t) w-o-w to RMB 3,485/t ($491/t) from RMB 3,599/t ($507/t) last week.

Furthermore, Chinese HRC export offers remained largely stable for the week at $525/t FOB. The export market remains sluggish due to ongoing anti-dumping investigations. Notably, Turkey has recently imposed anti-dumping tariffs on HRC imports from China.

Baosteel, a global steel giant, has increased HRC prices by RMB 500/t ($71/t) m-o-m for November 2024 sales, according to BigMint's sources. The hike follows stimulus measures by the Chinese government and a sharp increase in the SHFE for HRCs. Moreover, hot-dip galvanised steel prices were raised by RMB 550/t ($78/t).

5. Domestic rebar prices decrease: China's rebar offers decreased by RMB 110/t ($15/t) w-o-w to RMB 3,600/t ($507/t) against RMB 3,710/t ($522/t) in the previous week. SHFE rebar futures went down by RMB 117/t ($16/t) w-o-w to RMB 3,322/t ($468/t) as compared to RMB 3,492/t ($492/t) a week ago.

China's Shagang Steel has kept its long steel products prices stable for mid-October 2024 sales. Prices of rebars, coiled rebars, and wire rods rolled over w-o-w. Effective prices stood as follows:

• Rebar (16-25 mm): RMB 3,950/t ($558/t)
  
  
• Coiled rebar (8-10 mm): RMB 3,960/t ($560/t)
  
  
• Wire rod (6-10 mm): RMB 3,870/t ($545/t)
  
  

All prices are ex-mill, including VAT.

Outlook

The steel market is expected to experience significant volatility due to government stimulus measures, fluctuating raw material prices, and global economic uncertainties. While the government's stimulus measures, especially in the real estate sector, could lead to a modest increase in steel production to meet rising demand, the overall market will be influenced by global economic conditions, including interest rates and trade policies. These factors will impact steel exports and the general market sentiment.