China's HRC-rebar price spread to recover in Sep'24

MySteel Global: The spot price spread between hot-rolled coil (HRC) and rebar in China is likely to recover after mid-September, gradually reaching yuan 50-100/tonne ($7.03-14.06/t), according to Mysteel Global's latest report on the dynamics of the two products' prices. So far this year, average domestic HRC prices have been higher than those of rebar due to the higher production costs mills incur when making the flats and better demand for them than for construction steel long.

Moreover, the difference became even more prominent in July when news broke that Beijing would soon be banning the production of rebars conforming to existing standards (to be replaced by new standards next month), which prompted panic selling of bars at a discount among mills and traders.

Compared with hot coils that enjoy relatively steady demand all year round, China's rebar market is usually softer during July-August due to weak domestic demand for construction steel in summer, which is marked by high temperatures and frequent storms.

The stricter production and performance standards, which are to be mandated for rebars from the end of September, also led many steel mills to undertake unscheduled maintenance on their bar mills this month to ease supply and price pressure. In any case, the mills need some time to make adjustments to their upstream operations to ensure that they can make the new-standard rebars. Besides, there is little point maintaining steady production of existing-standard rebars when in four weeks' time, these won't be needed, Mysteel Global noted.

Owing to mills' reduction of rebar output and the smooth destocking of old-spec rebar, prices of the long item gradually rebounded in August, while HRC prices were dragged down by tepid demand amid robust supply and mounting inventories. As of 31 July, China's spot price of Q235 4.75 mm HRC in Shanghai was yuan 230/t higher than the price of HRB400E 20 mm dia rebar, Mysteel's assessment showed. By 28 August, the HRC price was lower by yuan 70/t.

However, the reversal in price trends may not last long, given that more pressure is being exerted on rebar fundamentals when compared with the relatively stable HRC market. Although September is traditionally a peak month for steel consumption in China, the still struggling property market-the largest consumer of construction steel-may only see a marginal recovery in long steel demand next month, providing little support for rebar prices.

Meanwhile, funding issues will likely continue to weigh on the operations of Chinese building contractors in September, which in turn will stymie rebar procurement, further delaying any significant recovery in demand and prices. By 28 August, fund availability at the 10,094 construction projects that Mysteel Global tracks nationwide, which are managed by 187 leading Chinese construction enterprises, averaged just 62%.

Besides, with the recent improvement in long steel prices and profit margins on sales, steel mills are expected to ratchet up rebar production in the short run, Mysteel Global's report noted, warning that any increase in production could place renewed pressure on prices of the long item. By 28 August, six electric arc furnace mills in East China had indicated their intention to resume rebar production from late August to mid-September.

In contrast, domestic HRC prices are likely to be supported by the manufacturing sector, which will enter a peak month for both production and sales in September. Meanwhile, hot coil exports may also increase next month, as producers have noted the rise in trade cases being mounted by many countries against Chinese steel products and might seize overseas business opportunities before punitive tariffs are implemented.

Note: This report has been written in accordance with an article exchange agreement between Mysteel Global and BigMint.