China weekly: Steel prices show mixed trends amid decline in SHFE futures

• SHFE futures show downward trend
  
  
• Shagang Steel raises long steel prices for early-June
  
  

Chinese steel prices showed a mixed trend this week amid decline in SHFE futures. Domestic prices of HRC remains stable, whereas prices of coking coal inched up. However, rebar, billet and iron ore prices showed a downward trend.

China's steel industry saw a rise in CO2 emissions by over 7% in 2023 and the country is aiming to control emissions through production cuts and setting absolute reduction targets.

1.Iron ore spot prices decline by $6/t w-o-w: The benchmark iron ore fines price decreased sharply w-o-w by $6/t to $115/ t CFR China on 31 May. The Chinese government had on 29 May announced regulations to control steel manufacturing output and capacity under the FY25 Energy Saving and Carbon Reduction Action Plan. The oversupply of iron ore and the high stock levels at Chinese ports continue to suppress iron ore prices. Landing margins have recently been poor, leading some mills to restock only as needed to maintain favourable production margins.

Iron ore inventory at major Chinese ports inched up by 0.85 mnt to 145.5 mnt on 30 May compared to last week, according to SteelHome data.

a) Spot pellet premium inches up w-o-w: The spot pellet premium for Fe 65% grade pellets edged up by $ 0.45/t w-o-w at $12/t on 29 May.

b) Spot lump premium rises w-o-w: The spot lump premium increased by 0.019 at $0.1500/dmtu on 30 May.

2. Coking coal prices edge up: Coking coal prices edged by $3/t w-o-w to $242/t FOB on 31 May. Prices edged up on the back of firm demand and expectation of tightening of July laycan cargoes.

3.China's steel billet prices inch down: Billet prices in Tangshan inched down by RMB 50/t ($7/t) w-o-w to RMB 3,510/t ($494/t) on 31 May against 24 May. Decline in raw material prices, finished steel prices, and rebar futures have put pressure on billet prices. Prices include 13% VAT. SHFE rebar futures (October, 2024 delivery) decreased by RMB 82/t ($12/t) w-o-w to RMB 3,706/t ($521/t) on 31 May, 2024.

4.HRC prices remain stable: Chinese HRC prices remained stable for the week at RMB 3,830/t ($529/t) with decline in SHFE futures. SHFE futures (October contract) decreased by RMB 64/t ($9/t) w-o-w to RMB 3,840/t ($530/t) as compared to RMB 3,904/t ($539/t). However, HRC export offers remained unchanged at $540/t. Domestic demand in China remained sluggish and did not see the usual spring surge in buying, causing Chinese steel prices to stay stable.

5.Rebar offers decline by $4/t: China's rebar offers decreased by RMB 30/t ($4/t) w-o-w to RMB 3,810/t ($526/t) against RMB 3,840/t ($530/t) a week ago, following the decline in SHFE futures. SHFE futures (October contract) fell by RMB 71/t ($10/t) w-o-w to RMB 3,715/t ($513/t) as compared to RMB 3,786/t ($523/t), a week ago.

With summer approaching in China, construction activity is expected to slow due to hot weather and rain. This typically leads to a decrease in rebar demand compared to the peak spring season. Anticipating this seasonal weakness, traders are cautious and keeping rebar prices relatively low within a limited range.

China's Shagang Steel has increased long steel prices RMB 50/t ($7/t) for early-Jun'24 sales. Effective prices:

• Rebar (16-25 mm): RMB 4,070/t ($562/t)
  
  
• Wire rod (6-10 mm): RMB 4,120/t ($569/t)
  
  
• Coiled rebar (8-10 mm): RMB 4,110/t ($568/t)
  
  
• All prices are ex-mill, including VAT.
  
  

Outlook

Steel prices are likely to remain volatile in the near term. Rebar prices might see some decline due to seasonal weakness in construction.