China weekly: Steel prices inch up, near-term outlook stable

The Chinese steel market has seen a marginal increase in prices, whether in futures or spot prices, within the past week. News of production cuts in Tangshan seems to have lent some support.

Total steel inventory of China Iron and Steel Association (CISA)-affiliated mills fell by 1.42 million tonnes (mnt) or 8.89% to 14.78 mnt in late-June 2023 compared with mid-June. Inventory decreased by 0.84 mnt or 5.38% m-o-m as against late-May.

The average daily crude steel output of CISA-affiliated mills stood at 2.246 mnt in late-June, down by 0.71% from mid-June. However, output increased by 7.46% m-o-m.

Product-wise sentiments

1. China spot iron ore prices fall w-o-w: Chinese spot iron ore fines Fe 62% prices stood at $109.45/t CNF China on 7 July, which decreased by $2.15/t w-o-w, against $111.6/t CNF China in the previous week. Iron ore prices fell amid thin buying activity and macroeconomic issues. Participants in China's portside market noticed a dramatic decline in portside pricing, in accordance with the futures market's fall. Most of the traders were hesitant to offer at China portside, preferring to wait for a clear market trend.

According to SteelHome data, iron ore inventory at major Chinese ports decreased by 0.5 mnt to 125.2 mnt on 6 July compared to the previous week.

a) Spot pellet premium stable w-o-w: Spot pellet premium for Fe 65% grade pellets remained stable at $17.35/t on 6 July, compared to the previous week.

b) Spot lump premium rises w-o-w: Spot lump premium stood at $0.1150/dmtu, increasing by $0.0240/dmtu compared to last week.

2. Coking coal prices fall: Coking coal prices fell marginally by 2% w-o-w to $229/t FOB from $233/t FOB last week. Prices dropped amid declining buying interest.

3. Chinese billet prices edge up w-o-w: Billet prices in China's Tangshan witnessed a slight w-o-w increase of RMB 10/t ($1/t) to RMB 3,550/t ($492/t), including 13% VAT, on 7 July. Volatility in rebar futures and finished steel prices throughout the week has weighed on domestic billet market. China's SHFE rebar futures stood at RMB 3,671/t ($508/t), a fall of RMB 50/t ($7/t), w-o-w on 7 July.

4. Domestic HRC prices increase: Domestic HRC prices decreased by RMB 30/t ($4/t) w-o-w to RMB 3,790/t ($525/t). The settled price of SHFE HRC futures (October contract) increased by RMB 16/t ($2/t) w-o-w to RMB 3,823/t ($529/t) on 7 July as against RMB 3,807/t ($527/t) a week ago. The market is experiencing volatility and instability without any significant breakthroughs. It had high expectations for infrastructure development and a large-scale stimulus policy, which have not materialised, resulting in disappointment.

China's HRC export offers increased by $10/t w-o-w to $560/t FOB Rizhao as against $550/t FOB last week. Buyers have been silent after seeing the volitality in Chinese domestic market.

5. Rebar prices edge down: Chinese rebar prices edged down by RMB 10/t ($1/t) w-o-w to RMB 3,830/t ($530/t) on 7 July. SHFE rebar futures (October contract) settled at RMB 3,729/t ($516/t) on 29 June, up RMB 16/t ($2/t) against RMB 3,713/t ($514/t) a week ago. There is no clear directions for the market at present owing to weak demand, but talks of production cut may lend support.

Outlook

The macro economy has shown some signs of recovery in the first half of the year, but the momentum is weak and indicators like real estate development investment are still declining. As a result, it is anticipated that more measures will be introduced in the second half of the year to stabilise growth, such as increased investment projects. The depreciation of the RMB against the US dollar is also a factor to watch out for. However, sources expect prices are less likely to show any major fluctuations next week.