China weekly: Steel prices rise w-o-w amid rise in raw material prices

Chinese domestic steel prices are up w-o-w, following the upward trend in SHFE futures contracts. Finished steel prices are on the rise, driven by higher raw material costs like iron ore and coking coal, as well as positive market sentiment. In addition, Chinese HRC export prices have continued to remain stable this week as well.

The average daily crude steel output of CISA-affiliated mills stood at 1.929 mnt in mid-December 2023, down slightly by 0.14% from 1.932 mnt in early-December 2023.

The China Iron and Steel Industry Association reported steel inventory of key steel enterprises in mid-December 2023 at 15.017 million tonnes (mnt), an increase of 910,400 tonnes (t) or 6.45% against 14.106 mnt in early-December 2023.

Product-wise sentiments

1. Iron ore spot prices rise w-o-w: The benchmark Fe 62% fines index increased by $4.4/t w-o-w to $140/t CFR China on 22 December. Iron ore prices rose following the strong demand and high liquidity expectations. New deposit interest rate cuts from major state-owned banks may take place which may bring more liquidity to the financial market. Chinese steel mills have been restocking more often before the Chinese holidays by earlier January laycan. As per reports, some market participants have begun securing shipments scheduled for February to capitalize on the post-holiday demand revival.

Iron ore inventory at major Chinese ports remained stable at 113.65 mnt on 21 December compared to the previous week, according to SteelHome data.

a) Spot pellet premium largely stable w-o-w: Spot pellet premium for Fe 65% grade pellets inched down by $0.5/t w-o-w at $17/t on 20 December.

b) Spot lump premium rises marginally w-o-w: Spot lump premium increased marginally by 0.009 w-o-w at $0.1740/dmtu on 22 December.

2. Coking coal prices edge up w-o-w: Coking coal prices edged up by 2% w-o-w to $327/t FOB on 23 December 2023 amid increased demand from steel mills.

3. Chinese billet prices rise w-o-w: Chinese domestic billet prices rose w-o-w by RMB 50/t ($7/t) to RMB 3,680/t ($516/t) on 22 December. Supportive market sentiments from rebar futures, raw material and finished steel have kept billet prices supported. Chinese SHFE rebar futures increased by RMB 89/t ($12/t) to RMB 4,004/t ($561/t), w-o-w.

4. Domestic HRC prices are up w-o-w: Domestic hot-rolled coil (HRC) price is up by RMB 30/t ($4/t) w-o-w to RMB 3,990/t ($559/t) this week as compared to RMB 3960/t ($555/t) in the previous week. The recent rise in SHFE futures contracts, coupled hike in raw material prices, led to increase in domestic steel prices. The SHFE HRC futures (May contract) rose by RMB 75/t ($11/t) w-o-w to RMB 4122/t ($578/t) on 22 December as against RMB 4,047/t ($567/t) a week ago.

Chinese HRC export offers remained stable at $575/t. Cautious buyers, however, remained on the sidelines ahead of the upcoming holidays.

Chinese HRC export offers remained stable at $575/t. Cautious buyers, however, remained on the sidelines ahead of the upcoming holidays. Buyers remained cautious ahead of Christmas and new year holidays.

5. Rebar prices increase w-o-w: Chinese rebar prices increased by RMB 10/t ($1/t) w-o-w to RMB 3,900/t ($547/t) as against RMB 3,890/t ($545/t) a week ago. SHFE rebar futures (May contract) settled at RMB 4002/t ($555/t) on 22 December, up by RMB 70/t ($10/t) against RMB 3,932/t ($551/t) a week ago. A decrease in supply of rebar led to increase in rebar prices, this can be due to factors like production cuts by steel mills, raw material shortages, or import restrictions.

6. Shagang Steel rolls over steel prices: China's Shagang Steel has kept rebar, wire rod, and coiled rebar prices unchanged for late-Dec'23 sales. Effective prices-

• Rebar (16-25 mm): RMB 4,250/t ($595/t)
  
  
• Wire rod (6-10 mm): RMB 4,340/t ($608/t)
  
  
• Coiled rebar (8-10mm): RMB 4,430/t ($620/t)
  
  
• All prices are ex-mill, including VAT. Revised prices are effective from 11 Dec'23.
  
  

Outlook: The combined impact of high raw material costs and off-season demand, maintenance and production reduction plans are likely to weigh on supplies. On the other hand, due to the deepening impact of cold winter weather, project construction progress is likely to gradually slow down and demand is likely to turn subdued.