China weekly: Steel prices show mixed trend amid volatile SHFE futures

Chinese steel prices showed mixed trends this week amid volatility in SHFE futures. Prices for steel futures contracts (HRCs and rebar) on the Shanghai Futures Exchange (SHFE) dropped significantly last week. However, this week there are signs of a rebound in the Chinese futures market, with both HRC and rebar prices rising w-o-w.

Prices of coking coal, met coke and rebar fell w-o-w, whereas HRC export offers remained stable. However, domestic prices of iron ore, billet and HRC showed an upward trend this week.

The World Steel Association (WSA) reported that crude steel production for the 71 countries has increased by 3.7% y-o-y to 148.8 mnt in February. Moreover, the same inched up by 0.5% m-o-m against 148.1 mnt in January. Of which, China's crude steel output for the first two months of 2024 was 167.96 million tonnes (mnt), up by 1.6% y-o-y.

Product wise sentiments

1. Iron ore spot prices recover w-o-w: The benchmark iron ore fines prices rose by $9/t w-o-w to $109/ t CFR China on 22 March 2024 due to enhanced restocking demand by steel mills amid improvement in finished steel sales. Steel manufacturers are finding medium-grade fines more cost effective. The recovery in finished steel de-stocking boosted market confidence which led to rise in iron ore prices due to improved buying interest. As per reports, iron ore port stocks were still higher but these won't directly impact iron ore pricing in the near term.

Iron ore inventory at major Chinese ports inched down by 0.4 mnt to 140.5 mnt on 21 March compared to 14 March, according to SteelHome data.

a) Spot pellet remain stable w-o-w: Spot pellet premium for Fe 65% grade pellets remained stable w-o-w at $12.7/t on 20 March.

b) Spot lump premium down w-o-w: Spot lump premium inched down by 0.018 w-o-w to $0.1250/dmtu on 21 March.

2. Coking coal prices drop w-o-w: Coking coal prices dropped by 19% w-o-w to $245/t FOB on 23 March due to muted demand resulting in oversupply.

3. Chinese billet prices jump w-o-w: Chinese domestic billet prices rose by RMB 100/t ($14/t) w-o-w to RMB 3,410/t ($472/t) on 22 March, w-o-w. Rise in raw material and finished steel prices, decreasing inventory pressure and recovery in demand supported billet prices. Meanwhile, Chinese SHFE rebar futures increased sharply by RMB 122/t ($17/t) w-o-w to RMB 3,612/t ($500/t).

4. Domestic HRC prices up w-o-w: Domestic hot-rolled coil (HRC) prices in China went up by RMB 20/t ($3/t) w-o-w to RMB 3,770/t ($522/t) on 22 March against RMB 3,750/t ($519/t) on the same day last week, following the uptrend in HRC futures. In some regions across the country, retail stocks of HRCs have been declining, which contributed to a price increase. SHFE HRC futures (May contract) increased by RMB 123/t ($17/t) w-o-w to RMB 3,822/t ($529/t) on 22 March compared to RMB 3,699/t($512/t) on 15 March.

Chinese HRC export offers remained stable w-o-w to $540/t this week. Volatility in SHFE HRC prices prompted Chinese mills to keep their offers stable.

5. Rebar prices edges down w-o-w: Chinese rebar prices edged down by RMB 20/t ($3/t) w-o-w to RMB 3,640/t ($504/t) compared to RMB 3,660/t ($506/t) a week ago. SHFE rebar futures (May contract) rose by RMB 108/t ($15/t) to RMB 3,612/t ($500/t) on 22 March as against RMB 3,504/t ($485/t) on 15 March.

In addition, during January-February 2024, China's rebar production inched down by 0.3% y-o-y to 32.099 mnt, according to latest data released by the National Bureau of Statistics, China.

6. Shagang trims long steel prices: China's Shagang Steel has reduced rebar prices by RMB 100/t ($14/t) and wire rod and coiled rebar prices by RMB 200/t ($28/t) for late-March sales. Effective prices are thus:

• Rebar (16-25 mm): RMB 3,920/t ($545/t)
  
  
• Wire rod (6-10 mm): RMB 3,970/t ($552/t)
  
  
• Coiled rebar (8-10 mm): RMB 3,960/t ($550/t)
  
  
• All prices are ex-mill, including VAT.
  
  

Outlook

The outlook for the Chinese steel market is mixed, with signs of both potential price increases and downward pressure. Recovery in finished steel sales and restocking by steel mills indicate growing demand, which could push prices up. Rising iron ore prices due to restocking suggest a potential increase in steel production costs. Declining inventories of iron ore and HRCs in some regions could put upward pressure on prices.

However, continued volatility in SHFE futures contracts creates uncertainty for steel prices. Moreover, oversupply of coking coal could lead to lower steel production costs, potentially dampening price increases.