China weekly: Steel prices show downtrend with fall in SHFE futures

The Chinese steel market faced a steep decline, closely following the downtrend in Shanghai Futures Exchange (SHFE) prices. Domestic steel products, such as billets, hot-rolled coils (HRCs), and rebars, experienced w-o-w price drops. In addition, raw material costs for iron ore and coking coal also fell.

1. Iron ore spot prices fall sharply: The benchmark iron ore fines price significantly decreased by $8/t w-o-w to $91.75/t CFR China on 6 September 2024 amid a weak downstream market and sluggish end-user demand ahead of the restocking season. Prices of high-grade materials are expected to decline as the procurement of medium-grade goods decreases, with low-grade fines expected to be the main feedstock for mills for now. The anticipated seasonal demand boost from the "Golden September and Silver October" period failed to materialise, compounded by limited funding availability. However, with the continuous decline, portside prices have reached levels at which mills find it suitable to stockpile their inventories.

Iron ore inventories at China's major ports inched down by 0.3 million tonnes (mnt) to 150.5 mnt on 5 September, compared to the previous week, according to SteelHome data.

a) Spot pellet premiums fall: Spot pellet premiums for Fe 65% grade pellets edged down by $0.40/t w-o-w to $16.50/t CFR China on 4 September.

b) Spot lump premiums drop: Spot lump premiums dipped by $0.014/dry metric tonne unit (dmtu) w-o-w to $0.14/dmtu on 6 September.

2. Coking coal prices decrease: Coking coal prices decreased by $13/t w-o-w to $185/t FOB Australia. This decline is attributed to a fall in futures along with demand concerns in China.

3. Chinese billet prices remain under pressure: Billet prices in Tangshan dropped sharply by RMB 200/t ($28/t) w-o-w to RMB 2,760/t ($389/t) (inclusive of 13% VAT) on 6 September. Increasing port inventories, falling raw materials, and declining finished steel prices and rebar futures weighed on billet prices throughout the week. SHFE rebar futures (January 2025 delivery) decreased by RMB 123/t ($17/t) to RMB 3,026/t ($427/t) on 6 September as against 3 September.

4. Domestic HRC offers drop: Chinese HRC offers dropped sharply by RMB 170/t ($24/t) w-o-w to RMB 3,050/t ($431/t) from RMB 3,220/t ($455/t) last week, mirroring a downward trend in SHFE HRC futures (January contract). SHFE HRC futures declined by RMB 233/t ($33/t) w-o-w to RMB 3,113/t ($439/t) against RMB 3,346/t ($472/t) a week ago. Domestic HRC prices dropped with a fall in futures prices for the flat steel product. This continued downward trend was fuelled by weak supply-demand dynamics and a decrease in raw material prices.

Furthermore, Chinese HRC export offers remained unchanged for the week, at $465/t.

5. Domestic rebar offers fall: China's domestic rebar offers declined by RMB 50/t ($7/t) w-o-w to RMB 3,250/t ($459/t) against RMB 3,300/t ($466/t) the previous week. Prices fell as demand weakened due to bearish market sentiments. The declining futures market further dampened the sentiment in the spot market. SHFE rebar futures (January contract) were down by RMB 176/t ($25/t) w-o-w to RMB 3,067/t ($433/t) as compared to RMB 3,243/t ($458/t) last week.

However, China's Shagang Steel increased prices for rebars, wire rods, and coiled rebars by RMB 50/t ($7/t) for its early September 2024 sales. Effective prices are as follows:

• Rebar (16-25 mm): RMB 3,500/t ($493/t)
  
  
• Wire rod (6-10 mm): RMB 3,420/t ($481/t)
  
  
• Coiled rebar (8-10 mm): RMB 3,510/t ($494/t)
  
  
• All prices are ex-mill, including VAT.
  
  

Outlook

The current outlook for the Chinese steel market remains cautious, as prices continue to face downward pressure amid weakened demand and market sentiment. The prospects for the coming months remain uncertain as the industry navigates the complexities of a volatile market environment.