Chinese domestic steel market shows mixed trends w-o-w; outlook uncertain

Chinese domestic steel prices exhibited mixed trends amid volatile SHFE futures. HRC futures experienced an increase, while rebar futures remained flat w-o-w. The prices for iron ore remained stable; however, prices of billet and rebar declined w-o-w. Additionally, Chinese HRC export prices edged down for the current week.

The China Iron and Steel Industry Association (CISA) reported the steel inventory of key steel enterprises in early January 2024 at 14.394 million tonnes (mnt), showing an increase of 2.035 mnt or 16.47% compared to 12.36 mnt in late December 2023.

The average daily crude steel output of CISA-affiliated mills stood at 2.019 mnt in early January 2024, marking a 21.19% increase from 1.666 mnt in late December 2023.

Product-wise sentiments

1. Iron ore spot prices remain stable w-o-w: The benchmark Fe 62% fines index remained stable w-o-w at $131/t CFR China on 19 January. Steel mills purchased in limited volumes and are cautious about potential price drops post-procurements. Regional transportation issues due to heavy rainfall have been improved and the discount from the prominent mines also narrowed down. Several steel mills were ensuring the maintenance of their blast furnaces and may keep high operating rates during the Chinese Lunar New Year holidays.

Iron ore inventory at major Chinese ports increased by 1.9 mnt to 122.2 mnt on 18 January compared to the previous week, according to SteelHome data.

a) Spot pellet premium fall w-o-w: Spot pellet premium for Fe 65% grade pellets fell by $0.5/t w-o-w at $14.5/t on 18 January.

b) Spot lump premium inches down w-o-w: Spot lump premium decreased by 0.0285 w-o-w at $0.1565/dmtu on 19 January.

2. Coking coal prices edge up w-o-w: Coking coal prices edged up by 2% w-o-w to $327/t FOB on 23 December 2023 amid increased demand from steel mills.

3. Chinese billet prices drop w-o-w: Chinese billet prices dropped by RMB 10/t ($1/t) to RMB 3,590/t ($502/t) on 19 January against 12 January. Recovery in rebar futures has supported billet prices. However, lower trades, decreasing raw materials and finished steel prices continue to be a matter of concern. Whereas, Chinese SHFE rebar futures increase by RMB 13/t (2/t) w-o-w to RMB 3,915/t ($550/t) today.

4.Domestic HRC prices increase w-o-w: Domestic hot-rolled coil (HRC) prices in China edged up by RMB 10/t ($1/t) w-o-w, reaching RMB 3,980/t ($559/t) in the current week, compared to RMB 3,970/t ($558/t) in the previous week. This increase in HRC prices followed the upward trend in SHFE HRC futures. The SHFE HRC futures (May contract) rose by RMB 11/t ($2) w-o-w, reaching RMB 4,029/t ($566/t) on 19 January. However, Chinese HRC export offers declined by $10/t w-o-w to $570/t.

5.Rebar prices edged down w-o-w: Chinese rebar prices experienced a slight decline of RMB 30/t ($4/t) w-o-w, reaching RMB 3,840/t ($540/t) compared to RMB 3,870/t ($544/t) the previous week. SHFE rebar futures (May contract) remained flat at RMB 3,907/t ($549/t) on 19 January. During the winter months, construction activity typically slows down due to adverse weather conditions, leading to decreased demand for rebar. Despite lower demand, some steel mills maintained high production rates, possibly driven by existing contracts or cost optimization efforts, contributing to surplus supply and downward price pressure.

Outlook:

Multiple electric arc furnace (EAF) steel plants in Sichuan and Chongqing are initiating early closures ahead of the Lunar New Year, prompted by a decline in construction projects, reduced demand, and increasing inventory levels. This decision comes after a year of financial setbacks for many steel producers grappling with a sluggish market. The production suspensions, spanning from late Jan to early Feb, are viewed as a strategic measure to trim costs, streamline operations, and position themselves for upcoming industry challenges.