Chinese steel prices rise on supportive SHFE futures
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- PBOC cuts RRR by 50 basis points
- Steel inventories at CISA mills continue upward trend in mid-Jan'24
Chinese steel prices experienced a w-o-w increase, driven by hike in Shanghai Futures Exchange (SHFE) futures. The market sentiments got boosted after The People's Bank of China said it will cut the reserve requirement ratio (RRR) by 50 basis points. Spot iron and billet prices also witnessed a w-o-w climb, whereas, coking coal prices slightly dipped w-o-w. Domestic HRC and rebar prices maintained their upward trend this week, while HRC export offers also increased.
The China Iron and Steel Industry Association (CISA) reported steel inventory of key steel enterprises in mid-January 2024 at 15.354 million tonnes (mnt), increase by 0.96 mnt or 6.67% against 14.394 mnt in early-January 2024.
The average daily crude steel output of CISA-affiliated mills stood at 2.093 mnt in mid-January 2024, up by 3.70% from 2.019 mnt in early-January 2024. Also, output rose by 8.5% m-o-m against 1.929 mnt in mid-December 2023.
Product-wise sentiments
1.Iron ore spot prices rise w-o-w: The benchmark Fe 62% fines index increased by $6.05/t w-o-w to $136.6/t CFR China on 25 January. Iron ore prices rose following the strong macroeconomic indicators and active purchasing for March delivery shipments. China's central bank's decision to reduce the reserve requirement ratio contributed to the bullish sentiment, prompting some re-stocking activities and a gradual rise in demand from steel mills. However, the mills could not regularly purchase iron ore at high offers as profit margin also played a role for a long time.
a) Spot pellet premium stable w-o-w: Spot pellet premium for Fe 65% grade pellets remained stable w-o-w at $14.5/t on 24 January.
b) Spot lump premium edge down w-o-w: Spot lump premium inched down by 0.007 w-o-w at $0.1495/dmtu on 25 January.
2. Coking coal prices edge down w-o-w: coking coal prices dropped marginally w-o-w to $330/t FOB on 27 Jan'24 amid transactions being concluded at lower level.
3. Chinese billet prices rise w-o-w: Chinese domestic billet prices rose w-o-w by RMB 80/t ($11/t) to RMB 3,650/t ($514/t) on 25 January. Positive market sentiments from raw material, finished steel, rebar futures and decreasing inventories amid active buying activities has kept billet prices supported before Chinese Lunar holidays. Meanwhile, Chinese SHFE rebar futures increased by RMB 54/t ($8/t) w-o-w to RMB 3,967/t ($559/t) on 25 Jan'24.
4.Domestic HRC prices increase w-o-w: Domestic hot-rolled coil (HRC) prices in China edged up by RMB 40/t ($6/t) w-o-w, reaching RMB 4,020/t ($565/t) in the current week, compared to RMB 3,980/t ($560/t) in the previous week. This hike in HRC prices followed the upward trend in SHFE HRC futures despite of cautious buyers and approaching holidays. The SHFE HRC futures (May contract) rose by RMB 71/t ($10) w-o-w, reaching RMB 4,100/t ($577/t) on 26 January. However, Chinese HRC export offers remained flat w-o-w to $570/t.
5.Rebar prices hiked w-o-w: Chinese rebar prices went up by RMB 50/t ($7/t) w-o-w, reaching RMB 3,890/t ($548/t) compared to RMB 3,840/t ($540/t) the previous week. SHFE rebar futures (May contract) rose by RMB 64/t ($9/t) to RMB 3,971/t ($559/t) on 26 January.
The upward trend in SHFE futures prices suggests that market participants anticipate a rise in physical steel prices in the coming months. This expectation of higher prices is impulsing buyers to stockup rebar, thereby increasing demand and pushing prices even higher.
6. Shagang steel reduced prices w-o-w: China's Shagang Steel has reduced long steel prices by RMB 50/t ($7/t) for late-Jan'24 sales. Effective prices-
- Rebar (16-25 mm): RMB 4,120/t ($576/t)
- Wire rod (6-10 mm): RMB 4,270/t ($597/t)
- Coiled rebar (8-10 mm): RMB 4,260/t ($596/t)
- All prices are ex-mill, including VAT. Revised prices are effective from 21 Jan'24.
Outlook
Chinese steel prices are likely to remain mostly positive, supported by strong macroeconomic indicators, active buying and declining inventories. However, some headwinds like approaching holidays and cautious buying could dampen prices.
