China weekly: Steel prices drop amid weak demand

• SHFE futures continue to decline
  
  
• China's HRC export prices hit a 4-year low
  
  
• Shagang Steel reduces long steel prices for late-July sales
  
  

Steel prices in China continued its downtrend for the week, the decline was triggered by falling futures contracts on the Shanghai Futures Exchange (SHFE). Consequently, prices for key steel products like hot-rolled coil (HRC) and rebar dropped. Raw materials also felt the pressure, with iron ore, billet, and coking coal prices decreasing compared to the previous week.

The China Iron and Steel Association (CISA) reported total steel inventory of key enterprises in mid-July 2024 at 16.302 million tonnes (mnt), up by 899,600 tonnes (t) or 5.84% compared to 15.402 mnt in early-July. However, the average daily crude steel output of CISA-affiliated mills stood at 2.148 mnt in mid-July 2024, a decrease of 0.16% against 2.151 mnt in early-July.

1.Iron ore spot prices fall by $2/t w-o-w: The benchmark iron ore fines prices dipped w-o-w by $2/t to $102/ t CFR China on 26 July 2024 amid limited trading activity following weak market fundamentals. Even the recent reduction of key interest rates by China's central bank failed to improve sentiment, highlighting the seriousness of the country's economic issues. The People's Bank of China recently issued $27.7 billion in one-year loans and reduced the bid rate for its medium-term lending facility from 2.50% to 2.30%. Meanwhile, steel mills continued to suffer losses due to high iron ore inventories at Chinese ports, leading to a market with strong supply and weak demand.

Iron ore inventory at major Chinese ports increased by 2.2 mnt to 151.8 mnt on 25 July compared to the last week according to SteelHome data.

a) Spot pellet premium remains stable w-o-w: Spot pellet premium for Fe 65% grade pellets remained stable w-o-w at $16.30/t CFR China on 24 July.

b) Spot lump premium down w-o-w: Spot lump premium decreased by $0.0065/dmtu to $0.1735/dmtu on 26 July.

2.Coking coal prices decline w-o-w: Coking coal prices fell by 5% w-o-w to $218/t FOB on 26 July. The continued material oversupply weakened market sentiments.

3.Chinese billet prices fall w-o-w: Billet prices in Tangshan fell by RMB 90/t ($12/t) w-o-w to RMB 3,180/t ($439/t) on 26 July. Volatility in raw materials, finished steel prices, and rebar futures throughout the week weighed on billet prices. Prices include 13% VAT. SHFE rebar futures (October, 2024 delivery) declined by RMB 108/t ($15/t) w-o-w to RMB 3,371/t ($465/t) on 26 July, 2024.

4.Chinese domestic HRC offers decline w-o-w: China's HRC offers fell w-o-w by RMB 90/t ($12/t) to RMB 3,510/t ($484/t) compared to RMB 3,600/t ($497/t) last week, the decrease is attributed to a drop in SHFE HRC futures prices. SHFE HRC futures (October contract) decreased by RMB 95/t ($13/t) w-o-w to RMB 3,566/t ($492/t) against RMB 3,661/t ($505/t) in the previous week. The downtrend in spot prices for Chinese hot-rolled coil continued on Monday, July 22, reaching their lowest point in over four years. Despite recent interest rate cuts, weak demand persisted, driving prices lower.

Due to the prolonged downturn in spot and futures markets, Chinese steelmakers were forced to cut HRC export prices. China's HRC export prices have hit a four-year low, the HRC export offers fell by $10/t w-o-w to $500/t from $510/t a week ago.

5.Chinese domestic rebar offers decrease w-o-w: China's domestic rebar offers sharply decreased by RMB 140/t ($19/t) w-o-w to RMB 3,400 ($469/t) against RMB 3,540/t ($488/t) in the previous week. SHFE rebar futures (October contract) dropped by RMB 98/t ($14/t) w-o-w reaching RMB 3,376/t ($466/t) compared to RMB 3,474/t ($479/t) in the last week.

Market sentiment was dampened by sluggish Chinese demand, compounded by widespread heavy rains and heatwaves. Additionally, panic selling of long steel rebar triggered by new national standards intensified the downturn.

China's Shagang Steel has reduced long steel prices by RMB 100/t ($14/t) for late-July 2024 sales. Effective prices:

• Rebar (16-25 mm): RMB 3,770/t ($518/t)
  
  
• Wire rod (6-10 mm): RMB 3,720/t ($511/t)
  
  
• Coiled rebar (8-10 mm): RMB 3,810/t ($524/t)
  
  
• All prices are ex-mill, including VAT.
  
  

Outlook

China's steel and raw materials are facing a challenging environment. Weak demand, over supply and economic uncertainties are putting downward pressure on prices. However, the impact of recent interest rate cuts remains uncertain, and the market sentiment is pessimistic.