Chinese steel prices downtrend but market optimistic of upturn post-Lunar fest

• Weak global commodities influence China market
  
  
• Iron ore trips as BF mills opt for maintenance
  
  
• Electric furnaces cool down, impact scrap prices
  
  

Morning Brief: Chinese steel prices fell marginally in December 2024. Benchmark hot rolled coils (HRCs) in Tangshan slid a negligible less than 1% m-o-m to RMB 3,585/tonne ($489/t) in December from RMB 3,613/t ($493/t) in November. Likewise, rebar fell 1.46% to RMB 3,305/t ($451/t) last month against RMB 3,354/t ($457/t) in the preceding month. January 2025 too, so far, has been seeing d-o-d price drops.

HRCs on the Shanghai Futures Exchange (SHFE) fell 2% m-o-m in December and have trended down from RMB 3,387/t ($462/t) on 4 January to RMB 3,312 ($452/t) on 10 January. Rebar futures lost 2% m-o-m at RMB 3,326/t or $454/t against RMB 3,391/t ($462/t) in this period and have shown steady but marginal dips so far from RMB 3,309/t ($451/t) in early January to RMB 3,302/t ($450/t) on 10 January.

At present, there is a resistance to the decline with rebar and plate prices in some markets remaining stable or falling only negligibly.

Why are Chinese steel prices falling?

Spring fest, sustained weak demand subdue prices: Transaction volumes have been weak over the last few weeks because of the approaching Spring Festival which has slowed down the market. There is little speculative buying while spot trades are limited. That apart, the historical demand downturn is continuing. Construction sector demand is very low, additionally hit by winter, a seasonally low-consumption period. As a result, domestic building material prices are exhibiting a weak trend.

Global commodities see bear run: The global commodities market is seeing a bear run amid over-supply, weak demand and countries' macro-economic factors. Prices of commodities across the board, including iron ore, coke, alumina, rubber, plastics etc have also declined. Asia-Pacific stock markets have fallen while the Chinese yuan (RMB) has fallen below 7.3 while the dollar has hit a high since November 2022. The global commodity weakness has influenced Chinese prices as well.

Iron ore cools amid BF idling: Last month, Chinese prices of imported iron ore initially fluctuated and then started to lose ground from the second half of December. The Fe62% Australian fines index dropped by $4.45/dry metric tonne (dmt) from end-November to $100.6/dmt CFR Qingdao as of 31 December. The m-o-m decline was 6%. The dip reflected the gradual cooling of market optimism, lifted earlier by central government announcements, and the fact that more steelmakers idled blast furnaces for overhauls in response to sluggish steel demand.

However, if the volume of production from the electric furnaces decreases during the Spring Festival, blast furnaces will still see room for restocking and replenishment, which is not a bad thing for iron ore and coke.

Electric furnaces pressure down scrap: Electric arc furnaces have slowed production ahead of the Lunar New Year, which has pressured scrap prices downward.

Shagang lowered scrap purchase prices twice in a row at the beginning of 2025, with a cumulative reduction of RMB 80/t ($11/t). Thus, mills are also lacking raw material price support at present.

Outlook

The long and short positions at present are being affected by the upcoming Spring Festival holidays. But the current downtrend is likely to have limited pressure on the overall steel market, and room for further decline will also be limited, as per some sources, as there is optimism, fuelled by the policy push seen in the latter part of last year. Thus, some price recovery is expected post-Lunar holidays.