China's HRC-rebar price spread to widen after CNY break

The price spread between hot-rolled coil (HRC) and rebar in China's domestic market is likely to expand after the Chinese New Year (CNY) holiday that ended on February 17, according to Mysteel's latest report, citing stronger performance of hot coil in the domestic market which has been brought about by its healthier fundamentals.

As of February 22, China's spot price of Q235 4.75mm HRC was Yuan 34/tonne ($4.7/t) higher than the national price of HRB400E 20mm dia rebar, Mysteel's assessment showed.

In fact, the price spread between HRC and rebar has been staying positive since last December, mainly due to the divergent market fundamentals of these two products, especially in terms of demand, the report noted.

For rebar, downstream demand has stayed weak in recent months, a traditional off-season for construction steel consumption in China because of cold and snowy weather, Mysteel noted.

Besides, the week-long CNY holiday also saw most traders and construction sites halt their operations for longer holiday breaks, which further dampened the demand for the long product, the report added.

As of February 16, the apparent use of rebar in China totaled only 293,200 tonnes, refreshing a new low for nearly four years, and the figure a week later has just recovered to 686,700 tonnes on February 22, Mysteel's weekly monitoring showed.

As such, rebar stocks nationwide have been mounting since late November last year, with the total inventories of the long product under Mysteel's regular survey among traders across 35 Chinese cities and 137 Chinese steel mills it tracks increasing for 13 consecutive weeks to a nearly one-year high of 11.8 million tonnes on February 22.

Furthermore, the recovery of rebar demand after the CNY holiday is expected to be rather slow, Mysteel's report believed, citing the fact that most construction projects are still suspended as workers usually take longer CNY breaks till the Chinese Lantern Festival which is on February 24 this year.

As of February 20, the resumption rate of 10,094 sampled construction sites across China registered just 13%, higher by 2% on year in the lunar calendar, according to Mysteel"s latest survey.

Compared with rebar, hot coil witnessed relatively resilient demand and slower mounting of stocks during the same period, which together offered support for the flat product's spot prices, Mysteel's report suggested.

As of February 22, the apparent use of HRC in China added up to 2.66 million tonnes, marking just three consecutive weekly declines, according to Mysteel's survey.

By the same day, total HRC inventories at traders across 33 Chinese cities and 37 steel mills Mysteel tracks nationwide stood at 4.28 million tonnes, up for seven straight weeks, Mysteel's survey found.

Indeed, downstream HRC consumption stayed relatively robust last December. China's manufactured goods, including automobiles and white goods, posted booming sales in the final month of last year as the year-end usually features a lot of promotional activities for these products, Mysteel's report explained.

Promotional efforts among manufacturers are still expected post the CNY holiday, the report added, indicating a recovery in demand for hot coils. For example, eight automakers in China including BYD have been running promotions in the first week after the CNY holiday, according to Mysteel's latest survey.

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