China weekly: Steel prices edge down w-o-w on weak domestic demand

• SHFE steel futures continue decline
  
  
• China's crude steel production down 9% in July
  
  
• Shagang Steel reduces long steel prices
  
  

Chinese steel prices continued their decline this week. Key products such as hot-rolled coil (HRC) and rebar saw further declines reflecting the downturn on Shanghai Futures Exchange contracts. This weakening of demand is also evident in the reduction in prices of raw materials, including billets, coal, and iron ore.

The average daily crude steel output of CISA-affiliated mills stood at 2 million tonnes (mnt) in early-August 2024, an increase of 1.52% against 1.973 mnt in late-July. CISA has reported that total steel inventory of key enterprises in early-August at 15.9 mnt, down 149,900 tonnes (t) or 0.93% compared to 16.050 mnt in late-July.

China's crude steel production in July stood at 82.94 mnt reflecting a 9% y-o-y decline compared to 90.8 mnt in July 2023. Moreover, production fell by 9% m-o-m against 91.61 mnt a month ago.

1.Iron ore spot prices fall by $7/t w-o-w: The benchmark iron ore fines price decreased w-o-w by $7/t to $92/t CFR China on 16 August amid weak market fundamentals with limited buying activity and reduced demand due to maintenance breaks at steel mills leading to expectations of further production cuts. Mills prioritised lower-grade fines, resulting in a gradual narrowing of the medium-low grade spread. Additionally, market participants are finding it difficult to sell as buyers hold back purchases amid bearish market sentiments.

Iron ore inventory at major Chinese ports fell by 0.8 mnt to 149.6 mnt on 15 August compared to last week, according to SteelHome data.

a) Spot pellet premium inches up w-o-w: Spot pellet premium for Fe 65% grade pellets edged up by $0.40/t at $16.70/t CFR China on 15 August.

b) Spot lump premium decreases w-o-w: Spot lump premium fell by $0.003/dmtu at $0.1670/dmtu on 16 August.

2.Coking coal prices drop w-o-w: Coking coal prices dropped 5% w-o-w to $204.5/t FOB. Prices fell on sufficient September loading cargoes accompanied with low buying demand.

3. Chinese billet prices drop w-o-w: Billet prices in Tangshan fell sharply by RMB 210/t ($29/t) w-o-w to RMB 2,860/t ($399/t) on 16 August. Rise in inventory levels, decline in raw material, finished steel prices and rebar futures weighed on billet prices. Prices include 13% VAT. SHFE rebar futures (October, 2024 delivery) dropped by RMB 199/t ($28/t) w-o-w to RMB 3,078/t ($430/t) on 16 August, 2024.

4. Domestic HRC offers down w-o-w: China's HRC offers fell sharply by RMB 240/t ($33/t) w-o-w to RMB 3,150/t ($440/t) against RMB 3,390/t ($473/t) last week, mirroring the decline in SHFE HRC futures (October contract) prices. SHFE HRC futures declined by RMB 229/t ($32/t) w-o-w to RMB 3,217/t ($449/t) compared to RMB 3,446/t ($481/t) last week. The price of Chinese HRC has extended its downward trend, driven by declining apparent demand. Spot prices have closely followed the movement of futures prices.

Chinese HRC export offers decreased by $15/t w-o-w to $480/t against $495/t a week ago. The extended decline in domestic spot and futures prices made Chinese mills to reduce their offer prices for HRC exports.

5. Domestic rebar offers decline w-o-w: Chinese domestic rebar offers dropped by RMB 130/t ($18/t) w-o-w to RMB 3,180/t ($444/t) as of RMB 3,310/t ($462/t) a week ago. SHFE rebar futures (October contract) decreased by RMB 174/t ($24/t) w-o-w to RMB 3,112/t ($434/t) as compared to RMB 3,286/t ($459/t) last week.

China's revised rebar standards, which will come into effect on September 25th, have caused a significant drop in rebar prices. The country's Standardization Administration updated the rebar regulations in June, prompting steel mills and traders to rapidly reduce their inventories starting in July. This inventory drawdown significantly impacted rebar prices, which subsequently influenced the overall steel market.

China's Shagang Steel has reduced long steel prices for rebar by RMB 70/t ($10/t). On the other hand, wire rod and coiled rebar offers decreased by RMB 100/t ($14/t) for mid-Aug'24 sales. Effective prices:

• Rebar (16-25 mm): RMB 3,550/t ($494/t)
  
  
• Wire rod (6-10 mm): RMB 3,470/t ($483/t)
  
  
• Coiled rebar (8-10 mm): RMB 3,560/t ($496/t)
  
  
• All prices are ex-mill, including VAT.
  
  

Outlook

The steel and raw materials market is showing a downtrend which is attributed to weak demand, ample supplies, and evolving regulatory standards. The market is expected to remain volatile, with continued downward pressure on steel prices due to persistent weak demand, high inventory levels, and ongoing regulatory changes.