China weekly: Steel prices show gradual recovery amid rising futures prices

China's domestic steel prices increased this week following a sharp rise in HRC and rebar prices on the Shanghai Futures Exchange (SHFE). However, coking coal prices remained largely stable w-o-w due to dull demand amid soaring energy prices.

Steel inventory at key Chinese mills stood at 15.94 million tonnes (mnt) in late August, a m-o-m decrease of 1.38 mnt or 8%, as per China Iron and Steel Association (CISA) data. Inventory rose by 4.64 mnt, or 41.13%, compared with the beginning of this year, while the volume was up by 2.51 mnt, or 18.74%, compared with late August 2021.

The average daily crude steel output of CISA-affiliated mills stood at 2.03 mnt in late August.

August export-import data

i) China's steel exports fell by 8% m-o-m to 6.15 mnt in August as against 6.67 mnt in July.
ii) Steel imports stood at 89,000 tonnes (t) in August, up 13% compared with 79,000 t in the previous month.
iii) Iron ore imports were recorded at 96.21 mnt in August, up 5% m-o-m against 91.24 mnt in July.

Product wise sentiments:

1. China spot iron ore prices recover: Chinese spot iron ore fines (Fe 62%) prices opened at $97.3/t CNF China for the week and were assessed at $103.65/t CNF China towards the weekend. Seaborne iron ore prices rose amid declining port stocks. However, buying interest dwindled slightly as China approaches the Mid-Autumn festival holidays.

On the eve of the holidays, some Chinese steel mills are restocking from the ports for use in their plants.

Iron ore inventory at major Chinese ports stood at 142.1 mnt this week, down by 0.9 mnt as against 143 mnt a week ago, as per data maintained by SteelHome.

a) Spot pellet premium edges down: Spot pellet premium for Fe 65% grade pellets was assessed at $20.55/t, down as against $21.05/t last week.

Pellet premiums extended losses because demand from China continues to tumble due to the fresh outbreak of COVID-19 cases.

b) Spot lump premium stable: The spot lump premium stood at $0.0945/dmtu, stable since last week.

2. Coking coal prices stable w-o-w: Coking coal prices remained stable for the week at $272/t FOB. The global demand for coking coal turned sluggish since the past two weeks with buyers making need-based purchases. A major European mill shut down its blast furnace due to high energy prices putting downward pressure on coking coal demand.

3. Billet prices rise towards weekend: Steel billet prices in China's Tangshan rose by RMB 60/t ($9/t) w-o-w. Prices stood at RMB 3,720/t ($537/t), including 13% VAT, on 9 September. Hike in rebar futures, decline in inventories and improving demand in the market before the mid-Autumn festival supported domestic prices. According to SteelMint data, China's SHFE rebar futures contract for January 2023 delivery closed at RMB 3,791/t ($547/t) on 9 September, an increase of RMB 154/t ($22/t) w-o-w.

4. HRC export offers down $10/t w-o-w: China's HRC (SS400) export offers dropped due to disparity between bids and offers. As a result, demand for Chinese HRC remained weak. China's HRC export offers stood at $580/t FOB China, down $10/t as against $590/t FOB a week ago. However, recovery in domestic HRC prices may support export prices.

China's domestic HRC prices rose by RMB 50/t ($7/t) w-o-w to RMB 3,970/t ($573/t) in northern China compared with RMB 3,920/t ($566/t) in the previous week. Prices rose following a sharp increase in SHFE HRC futures. However, domestic demand remained sluggish despite stimulus measures that were introduced to stabilise the economy.

SHFE HRC futures contract for January delivery rose by RMB 144/t ($21/t) w-o-w to RMB 3,830/t ($553/t) as on 9 September 2022.

5. Domestic rebar prices up: China's domestic rebar prices rose by RMB 40/t ($6/t) w-o-w to RMB 4,080/t ($589/t) in western China compared with RMB 4,040/t ($583/t) a week ago. Improved demand from end-users and favourable weather conditions drove prices higher.