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

• Steel prices drift lower
  
  
• Inventories at mills rise in mid-June
  
  

China's steel prices showed mixed trends this week with decline in SHFE futures. Domestic prices of HRC, rebar, billets and coking coal showed a downward trend whereas iron ore prices edged up for the week.

China's crude steel production decreased by 2.81% to 2.185 million tonnes (mnt) in mid-June 2024 against 2.248 mnt in early-June. Moreover, output edged down by 1.1% m-o-m against 2.209 mnt in mid-May. Steel inventory of key enterprises in mid-June stood at 16.425 mnt, up by 339,500 tonnes (t) or 2.11% compared to 16.086 mnt in early-June.

1.Iron ore spot prices rise w-o-w: Benchmark iron ore fines prices increased w-o-w by $2/t to $107/ t CFR China on 28 June 2024. This increase happened even amid cautious demand, largely driven by favourable policies of the Chinese government. According to a report, the Ministry of Natural Resources is exploring strategies to assist local governments in reclaiming and acquiring vacant land for housing projects. Market participants are currently adopting a wait-and-see approach, displaying reluctance to make immediate purchases, which has resulted in subdued demand. Meanwhile, steel mills are choosing to purchase lower-cost fines to enhance their margins.

Iron ore inventory at major Chinese ports increased by 1.05 mnt to 148 mnt on 27 June compared to last week, according to SteelHome data.

a) Spot pellet premiums rise w-o-w: Spot pellet premiums for Fe 65% grade pellets increased by $0.35/t w-o-w at $15.30/t CFR China on 26 June.

b) Spot lump premium down w-o-w: The spot lump premium decreased by 0.0035 at $0.2000/dmtu on 28 June.

2.Coking coal prices fall w-o-w: Coking coal prices fell by 2% w-o-w to $234/t FOB on 28 June. Prices fell on ample supplies from Australia and comparatively slow and stable demand.

3.Chinese billet prices decrease w-o-w: Billet prices in Tangshan dropped by RMB 30/t ($4/t) w-o-w to RMB 3,310/t ($455/t) on 28 June. Volatility in raw materials, finished steel prices and rebar futures throughout the week along with lower trades weighed on billet prices. Prices include 13% VAT. SHFE rebar futures (October'24 delivery) decreased by RMB 19/t ($3/t) w-o-w to RMB 3,544/t ($488/t) on 28 June.

4.HRC prices decline w-o-w: China's HRC offers decreased by RMB 40/t ($5/t) w-o-w to RMB 3,690/t ($508/t) against RMB 3,730/t ($513/t) last following the decline in SHFE HRC futures. SHFE HRC futures (October contract) moved down by RMB 35/t ($5/t) w-o-w to RMB 3,736/t ($514/t) compared to RMB 3,771/t ($519/t) last week.

Moreover, HRC export offers fell by $5/t w-o-w to $515/t against $520/t a week ago. This decrease is likely due to global market participants adopting a cautious approach following the recent safeguard measures announced by the European Commission.

5.Rebar offers fall w-o-w: China's rebar offers fell by RMB 80/t ($11/t) w-o-w to RMB 3,590/t ($494/t) against RMB 3,670/t ($505/t) last week amid declining SHFE rebar futures. SHFE rebar futures (October contract) declined by RMB 49/t ($7/t) w-o-w to RMB 3,537/t ($487/t) compared to RMB 3,586/t ($493/t) last week.

Outlook

The Chinese market is expected to experience downward pressure due to weak demand and ample supply, withy several factors contributing to this trend. Construction and other sectors are buying less steel, raw material prices are fluctuating, and global economic worries are impacting the futures market. Overall, the market fundamentals point to continued weakness and without significant government intervention steel prices are unlikely to rise.