China weekly: Steel prices remain stable despite weak market sentiments

Chinese steel prices have remained stable over the week even as a slight uptick was seen in the middle of the week. However, prices subsequently retreated to the previous week's level, with both crude steel production and inventory levels declining w-o-w.

The average daily crude steel output of CISA-affiliated mills stood at 2.046 mnt in late-August, down by 7.65% from 2.215 mnt in mid-August.

Meanwhile, total steel inventories at China Iron and Steel Association (CISA)-affiliated mills decreased by 1.906 million tonnes (mnt), or 11.46%, to 14.725 mnt in late-August 2023 compared with 16.630 mnt in mid-August.

Product-wise sentiments

1. Spot iron ore prices stable w-o-w: Chinese iron ore fines Fe 62% spot prices stood at $118/t CNF on 7 September, stable w-o-w, due to decent demand and numerous deals in the market. As per reports, China's steel mills demanded medium-grade fines supporting the price of iron ore. However, there is lacklustre demand for high-grade (Fe 65%) fines at ports.

a) Spot pellet premium edges up: Spot pellet premium for Fe 65% grade pellets increased by around $1.55/t to $19.65/t on 7 September, compared to the previous week.

b) Spot lump premium inches up w-o-w: The spot lump premium inched up by around $0.01/t w-o-w to $0.1565/dmtu on 7 September.

2. Coking coal prices rise: Coking coal prices rose by $3/t w-o-w to $275/t FOB on 8 September amid scarcity of material and consistent bids from China.

3. Billet prices fall w-o-w: Billet prices in China's Tangshan witnessed a decrease of RMB 20/t ($3/t) to RMB 3,550/t ($483/t), including 13% VAT, on 8 September. Volatility in rebar futures and weak finished steel market sentiments throughout the week weighed on billet prices. Meanwhile, China's SHFE rebar futures stood at RMB 3,717/t ($506/t), a fall of RMB 61/t ($8/t), w-o-w, on 8 September.

4. HRC prices edge down: Domestic HRC prices edged down by RMB 10/t ($1/t) w-o-w to RMB 3,890/t ($534/t) against RMB 3,900/t ($535/t) last week. Steel demand remained weak because market confidence in Beijing's stimulus measures decreased, causing steel prices to decline. Market participants opined that there has been no significant improvement in spot HRC trading in the first week of September, which is usually a peak period for steel consumption. The settled price of SHFE HRC futures (January contract) fell by RMB 66/t ($1/t) w-o-w to RMB 3,843/t ($537/t) on 9 September as against RMB 3,909/t ($536/t) last week.
China's HRC export offers increased initially at the start of the week but eventually fell to last week's level of $550/t FOB Rizhao. It has been observed that buyers either remained in wait-and-watch mode or were bidding low.

5. Rebar prices edge down: Chinese rebar prices edged down by RMB 10/t ($3/t) w-o-w to RMB 3,680/t ($503/t) on 8 September as against RMB 3,690/t ($501/t) a week ago. SHFE rebar futures (January contract) settled at RMB 3,757/t ($510/t) on 8 September, remaining unchanged w-o-w. The positive attitude towards home trading that was present at the beginning of September has started to decline. There are differing opinions on whether the property market will continue to improve or whether it will soon decline due to people lack of optimism about home investments.

Outlook: The market anticipates a gradual increase in steel demand in the second half of the year, primarily due to policy support and Infrastructure projects. In the third and fourth quarters of 2023, there will be a significant improvement in the short-term demand for construction machinery due to real estate and infrastructure policies.