China weekly: Steel prices show marginal upswing; market outlook mixed

Both futures and spot prices in the Chinese steel market witnessed a marginal upswing this week.

Total steel inventory at China Iron and Steel Association (CISA)-affiliated mills increased by 94,000 tonnes (t) or 0.59% to 15.893 million tonnes (mnt) in early July 2023 compared with early-June. Inventory increased by 1.118 mnt or 7.56% as against late June.

The average daily crude steel output of CISA-affiliated mills stood at 2.240 mnt in early July, up 7.98% from early June. However, output inched down by 0.25 % from late-June.

Product-wise sentiments

1. Spot iron ore prices rise:?Chinese spot iron ore fines (Fe 62%) prices stood at $115.8/t CNF China on 14 July, which increased by $6.35/t w-o-w as against $109.45/t CNF China in the previous week. Seaborne iron ore prices rose further after the People's Bank of China expressed optimism about the Chinese economy and property market. The lack of deflationary threats in China, as mentioned by the PBOC at a press conference, boosted the iron ore market. The PBOC's deputy governor stated that the central bank is not expecting deflationary threats in the second half of the year.

According to SteelHome data, iron ore inventory at major Chinese ports decreased by 1.9 mnt to 123.3 mnt on 13 July compared to the previous week.

a) Spot pellet premium largely stable: The spot pellet premium for Fe 65% grade pellets inched up by $0.1/t to $17.45/t on 13 July compared to the previous week.

b) Spot lump premium rises w-o-w: The spot lump premium stood at $0.1500/dmtu, increasing by $0.0350/dmtu compared to last week.

2. Coking coal prices fall: Coking coal prices remain mostly stable w-o-w to $232/t FOB, down from $229/t FOB last week. Prices were stable amid muted trading activity.

3. Chinese billet prices edge up marginally w-o-w: Billet prices in China's Tangshan witnessed a slight w-o-w increase of RMB 10/t ($1/t) to RMB 3,560/t ($499/t), including 13% VAT, on 14 July. Improved demand in the domestic market, recovery in rebar futures and finished steel prices has kept billet prices supported. China's SHFE rebar futures stood at RMB 3,774/t ($528/t), a sharp rise of RMB 103/t ($14/t), w-o-w on 14 July.

4. Domestic HRC prices increase: Domestic HRC prices increased by RMB 30/t ($4/t) w-o-w to RMB 3,820/t ($535/t). The settled price of SHFE HRC futures (October contract) increased by RMB 25/t ($4/t) w-o-w to RMB 3,848/t ($539/t) on 14 July as against RMB 3,823/t ($535/t) a week ago. The market's current state of volatility and instability can be attributed to unfulfilled expectations surrounding infrastructure development and a large-scale stimulus policy.

China's HRC export offers decreased by $10/t w-o-w to $550/t FOB Rizhao as against $560/t FOB last week. Steel exports had shot up to a 13-month high but have now declined for the first time this year. While China still has a price advantage for steel exports, the advantage is narrowing and the decrease in overseas steel supplies has alleviated.

5. Rebar prices edge down: Chinese rebar prices edged down by RMB 10/t ($1/t) w-o-w to RMB 3,820/t ($535/t) on 14 July. SHFE rebar futures (October contract) settled at RMB 3,748/t ($525/t) on 14 July, up RMB 19/t ($3/t) against RMB 3,729/t ($/522t) a week ago. Steel demand in China remained weak, although there were signs of improvement due to the central bank's fiscal policy intervention. Construction work was affected by the extremely hot weather in North China, causing both production and consumption of finished products to be under pressure amid increasing electricity usage.

China's Shagang Steel cut rebar prices by RMB 100/t ($14/t) for mid-Jul'23 sales. However, prices of wire rods and coiled rebar remain unchanged. Effective prices: rebar (16-25 mm): RMB 3,970/t ($551/t); and wire rod (6-10 mm): RMB 4,110/t ($571/t).

Outlook

The Chinese market witnessed minimal fluctuations and cautious trading, as downstream terminals had low demand willingness amid weak overall sentiments. However, inventory accumulation in the market slowed down due to a decrease in arrivals, easing the pressure on supply and demand. Currently, the market rebound is driven by expectations, but weak fundamentals persist.