China weekly: Steel prices rise as futures rebound; outlook mixed
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Chinese steel prices increased w-o-w following the uptrend HRC and rebar futures on the Shanghai Futures Exchange (SHFE). Steel exports from the country rose 8% y-o-y to 8.356 million tonnes (mnt) in May amid subdued domestic demand and competitive export prices. Moreover, steel inventory of China Iron and Steel Association (CISA)-affiliated mills declined by 0.64 million tonnes (mnt) or 4% to 15.62 mnt in late-May 2023 as compared mid-May.
Product-wise sentiments
1. Iron ore spot prices rise w-o-w on improved buying: Chinese spot iron ore fines Fe 62% prices stood at $116.65/t CNF China on 9 June, which sharply increased by $12.3/t w-o-w, against $104.35/t CNF China in the previous week. Iron ore prices increased on significant buying activity and a relaxation in China's monetary policy. Since the price rise for raw materials was greater than the price increase for steel, Chinese steel mills anticipated lower steel production margins.
According to SteelHome data, iron ore inventory at major Chinese ports decreased by 0.45 mnt to 126.2 mnt on 8 June compared to the previous week.
a) Spot pellet premium edges up w-o-w: Spot pellet premium for Fe 65% grade pellets inched up by $0.2/t to $18.1/t on 8 June compared to the previous week.
b) Spot lump premium decreases w-o-w: Spot lump premium stood at $0.1215/dmtu, decreasing by $0.0205/dmtu compared to last week.
2. Coking coal prices rise: Coking coal prices rose marginally w-o-w to $229/t FOB from $226/t FOB last week. Prices rose amid the slight rise in Chinese market which came following news of China announcing stimulus measures for the property sector.
3. Chinese billet prices rise to six-week high: Billet prices in China's Tangshan increased significantly w-o-w by RMB 150/t ($21/t) to RMB 3,540/t ($497/t), including 13% VAT, on 9 June. Prices have risen to a six-week high. Rising rebar futures and finished steel prices have kept billet prices supported. According to data maintained with SteelMint, China's SHFE rebar futures stood at RMB 3,711/t ($520/t), a sharp rise of RMB 115/t ($16/t), w-o-w.
4. HRC export offers surge: China's HRC export offers increased by $30/t w-o-w to $560/t FOB Rizhao as against $530/t FOB last week. SteelMint last heard that Chinese mills were sold out in terms of exports till June. However, thereafter, volumes may have dipped because of two factors. One, output cut pressure on mills and two, shrinking overseas demand as countries still fight inflation amid shrinkage in purchasing power.
Domestic HRC prices rose by RMB 120/t ($17/t) w-o-w to RMB 3,790/t ($532/t) against RMB 3,670/t ($515/t) last week. The settled price of SHFE HRC (October contract) futures rose w-o-w by RMB 102/t ($14/t) to RMB 3,794/t ($532/t) on 9 June as against RMB 3,692/t ($518/t) a week ago. Expectations for further stimulus from the Chinese government and anti-smog production curbs in northern China contributed to the previous rally in SHFE HRC prices.
5. Domestic rebar prices increase: Chinese rebar prices surged by RMB 200/t ($28/t) to RMB 3,890/t ($546/t) as against RMB 3,690/t ($518/t) last week. SHFE rebar futures (October 2023 contract) settled at RMB 3,691/t ($518/t), up RMB 128/t ($18/t) against RMB 3,563/t ($500/t) a week ago. Sellers were actively seeking to draw down their warehouse inventories, which sapped last Friday's upward momentum. Moreover, rising SHFE rebar prices also resulted in the rise in domestic rebar prices.
Outlook: While expectations for policy support and falling inventories will provide support to steel prices next week, long-term sustainability remains a question.
