China weekly: Steel prices show downward trend even as SHFE futures decline

• SHFE futures show downward trend
  
  
• Chinese HRC export volumes rise in H1
  
  

China's steel prices dropped this week, mirroring a decline in Shanghai Futures Exchange (SHFE) steel contracts. Domestic prices for hot-rolled coil (HRC) and rebar fell alongside raw material prices, which saw a w-o-w decrease in the iron ore, billet, and coking coal markets.

China's steel exports in January-June 2024 (H1) rose by 24% y-o-y to 53.40 million tonnes (mnt) as compared to 43.88 mnt in the same period of last year, as per General Administration of Customs.

Moreover, in June, the same increased by 16.5% y-o-y to 8.745 mnt against 7.51 mnt in June 2023. However, on m-o-m basis, export volumes decreased by 9% m-o-m as against 9.63 mnt, in the previous month.

1.Iron ore spot prices drop $3/t w-o-w: The benchmark iron ore fines price dipped w-o-w by $3/t to $108/ t CFR China on 12 July due to weak market fundamentals coupled with sluggish steel demand. Steel and raw material prices have dropped due to rainy weather in southern China following expected macroeconomic reforms. Reports indicate a persistent decrease in hot metal production, a slight reduction in steel mill operations, and a steady rise in iron ore port stocks. Major market participants were waiting for the third Plenum to be held next week.

Iron ore inventory at major Chinese ports increased by 1.2 mnt to 150.2 mnt on 11 July compared to last week, according to SteelHome data.

a) Spot pellet premium rises w-o-w: Spot pellet premium for Fe 65% grade pellets increased by $ 0.35/t w-o-w at $16/t CFR China on 10 July.

b) Spot lump premium down w-o-w: Spot lump premium decreased by $0.0045/dmtu at $0.2025/dmtu on 12 July.

2.Coking coal prices decline w-o-w: Coking coal prices fell by 2% w-o-w to $248/t FOB on 12 July. Prices fell on low demand, reselling of cargoes and high inventory levels.

3.China's steel billet prices decrease w-o-w: Billet prices in Tangshan dropped RMB 20/t ($3/t) w-o-w to RMB 3,290/t ($454/t) on 12 July. Volatility in raw materials, finished steel prices and rebar futures throughout the week weighed on billet prices. Prices include 13% VAT. SHFE rebar futures (October, 2024 delivery) decreased by RMB 30/t ($4/t) w-o-w to RMB 3,523/t ($486/t) on 12 July.

4.HRC prices fell w-o-w: China's HRC offers fell by RMB 60/t ($8/t) w-o-w to RMB 3,640/t ($502/t) against RMB 3,700/t ($510/t) a week ago following the decline in SHFE HRC futures. SHFE HRC futures (October contract) decreased by RMB 72/t ($10/t) w-o-w to RMB 3,704/t ($511/t) compared to RMB 3,776/t ($520/t) in the previous week.

Moreover, Chinese HRC export offers decreased by $5/t w-o-w to $510/t FOB against $515/t last week. Dropping steel prices in the Shanghai futures markets led Chinese mills to cut their HRC export prices.

World's top steel manufacturer, Baosteel , has reduced HRC prices by RMB 100/t ($14/t) m-o-m for August sales, after keeping prices unchanged in July. The company has lowered prices due to falling SHFE HRC futures prices along with weaker global market demand. However, prices for hot-dip galvanised have remained stable m-o-m.

5. Rebar prices decrease w-o-w: China's rebar offer declined by RMB 40/t ($6/t) w-o-w to RMB 3,560/t ($491/t) compared to RMB 3,600/t ($496/t) last week. SHFE rebar futures (October contract) fell by RMB 67/t ($9/t) w-o-w to RMB 3,519/t ($485/t) against RMB 3,586/t ($494/t) a week ago.

Rebar demand has dampened due to unfavourable weather conditions and market players' negative outlook about futures prices. Unless steel mills cut production, rebar prices are likely to face downward pressure in the coming weeks. This trend is reinforced by the weak performance of rebar futures, which tend to signal upcoming changes in the spot market.

China's Shagang Steel has kept long steel prices stable for mid-July'24 sales. Effective prices:

• Rebar (16-25 mm): RMB 3,870/t ($532/t)
  
  
• Wire rod (6-10 mm): RMB 3,820/t ($525/t)
  
  
• Coiled rebar (8-10 mm): RMB 3,910/t ($538/t)
  
  
• All prices are ex-mill, including VAT.
  
  

Outlook

The short-term outlook for China's steel prices is negative, with downward pressure expected. High inventories and weak seasonal demand will likely keep prices from rising significantly. Furthermore, rainy weather in southern China is hindering construction activity, a major steel consumer. However, factors like global steel demand and China's economic performance can influence futures prices.