China weekly: Steel prices increase following rise in futures; outlook uncertain
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Chinese steel prices increased w-o-w following the increase in Shanghai Futures Exchange (SHFE) hot rolled coil (HRC) and rebar futures until the latter dropped towards the weekend. Prices have gained support mostly from production cuts in the country.
Product-wise sentiments-
1. China spot iron ore prices rise w-o-w: Chinese spot iron ore fines (Fe 62%) prices stood at $108.4/t CNF China on 19 May, which increased by $5.35/t w-o-w against $103.05/t CNF China in the previous week. Iron ore spot prices in China increased w-o-w due to China's steel mills' constant high operation rates, there was strong demand for iron ore. Prices for seaborne fines have been supported by a gradual improvement in mill margins as demand forecasts improved and a flurry of market activity was observed. As per reports, the majority of China's steel mills were operating at high rates due to rising steel mill margins.
According to SteelHome data, iron ore inventory at major Chinese ports stood at 126.95 mnt on 18 May, which decreased by 1.35 mnt from 128.3 mnt last week.
a) Spot pellet premium rises w-o-w: Spot pellet premium for Fe 65% grade pellets was assessed at $17.8/t, which increased $0.3/t compared to the previous week.
b) Spot lump premium slightly down w-o-w: Spot lump premium stood at $0.1400/dmtu, decreasing by 0.0090 compared to last week.
2. Coking coal prices up: Coking coal price dropped by $17/t w-o-w to $225/t FOB from $242/t FOB last week. Prices fell as buyers are on the sidelines amid falling prices this week while demand from China has not increased.
3. Chinese billet prices edge up w-o-w: Billet prices in China's Tangshan increased w-o-w by RMB 20/t ($3/t) to RMB 3,420/t ($488/t), including 13% VAT, on 19 May. Recovery in rebar futures and finished steel prices amid production cuts in the region has kept billet prices supported. According to data maintained with SteelMint, China's SHFE rebar futures stood at RMB 3,645/t ($520/t), a rise of RMB 66/t ($9/t) w-o-w.
4. HRC export offers drop: China's HRC export offers dropped by $30/t w-o-w to $550/t FOB Rizhao as against $580/t FOB a week ago. Volatile SHFE HRC (October contract) as well as a further weakening of the RMB against the USD have weighed on HRC offers this week. Furthermore, limited buying interest amid overseas buyers' expectations of lower offers have kept trading activites limited on the global platform. Moreover, Ansteel lowered HRC prices by RMB 200/t ($29/t) m-o-m for June sales.
Domestic HRC prices rose by RMB 30/t ($4/t) w-o-w to RMB 3,720/t ($531/t) against RMB 3,690/t ($527/t) last week. The settled price of SHFE HRC (October contract) futures rose w-o-w by RMB 83/t ($/t) to RMB 3,730/t ($/t) on 19 May as against RMB 3,647/t ($520/t) a week ago. On d-o-d basis, prices dropped by RMB 28/t ($/t).
5. Domestic rebar prices inch up w-o-w: Chinese rebar prices were recorded at RMB 3,830/t ($547/t), up by RMB 100/t ($14/t) as against RMB 3,730/t ($532/t) last week.
SHFE rebar futures (October 2023 contract) settled at RMB 3,655/t ($520/t) on 19 May, up RMB 60/t ($/t) against RMB 3,595/t ($513/t) a week ago. On the contrary, the same has settled lower by RMB 40/t ($/t) d-o-d basis.
However, buyers are procuring on as-needed basis despite production cut prospects. The government intends to improve the situation. The National Development and Reform Commission (NDRC) approved investment in 56 fixed-asset investement (FAI) projects earlier this week. FAI projects are majorly focused on developement of road, power grid, factory installation and property sectors. The combined investment is RMB 378.4 billion (approx. $54.25 billion).
This is expected to be conducive for overall domestic steel consumption, SteelMint notes.
Outlook: The improvement in the Chinese steel outlook still largely depends on market fundamentals. Prices won't increase significantly until steel supply and demand restores balance once again.
