Will Chinese HRC prices rise further on strong demand?

The trajectories of Chinese prices of hot-rolled coil (HRC) and rebar have become entangled, once again. Hot coil prices had edged higher than rebars starting from this year's second half but from this month, rebars have gained the upper hand again. As of November 26, just Yuan 2/tonne ($0.3/t) separated them, and how they will move in coming weeks is still being debated, Mysteel Global noted.

During the past few years, domestic rebar prices were generally higher than HRC prices, given the crucial role rebars play in Chinese construction, a pillar industry propelling the country's economy. However, from this year's July-September quarter, HRC prices gained strength, given the robust demand from manufacturing industries at home and abroad, as well as the supply disruptions many HRC makers faced as a consequence of the COVID-19 pandemic, Mysteel Global noted.

Rebar and HRC price movement (year to date)

Unit: Yuan/tonne
Source: Mysteel

According to Mysteel's assessment, on November 9 the price of HRB400 20mm dia rebar once again exceeded the Q235 4.75mm HRC price, mainly as the sustained strong demand for bars since October had firmed market sentiment and boosted prices. However, over the past two weeks as bitter winter weather has hit many parts of China and halted work on building sites, so the consequent retreat in rebar prices while strengthening in the HRC prices has seen the swap of the positions for the two prices once again - just.

As of November 26, the prices of rebar and HRC were at Yuan 4,107/t and Yuan 4,109/t respectively, Mysteel's data showed.

Market sources offered differing opinions on the future outlook for dominance between prices of these two products, each representing China's long- and flat-steel sectors. A Shanghai-based steel trader expected HRC prices to stay above the rebar prices in the near term.

"Actual demand of long steel has shown signs of weakness as the days are getting colder, but HRC demand has remained more resilient," the trader said. Crucially, he admitted that he had exported a large quantity of flat steel products during this half, implying that for HRC prices, it could be overseas demand that would the vigor in the prices.

"Though domestic (HRC) demand stays firm, good export demand also saw some domestic sellers divert some coils abroad," he noted. China exported 2.4 million tonnes of flat steel including HRC products last month, higher by 200,000 tonnes or 9% on month and making for the second successive on-month rise, as reported. Supplying both domestic and foreign customers will keep availability taunt and ensure that HRC prices are in little danger of falling, Mysteel Global notes.

A steel trader in East China's Zhejiang province, however, was more cautious. "It's hard to say how the two prices will move and what the gap will be," he commented. "(HRC) demand from the manufacturing industry is strong, but demand from the infrastructure sector is firm too, compared with the previous years, which means that long steel demand will still be stronger in this year's Q4 than usual - despite the negative impact the winter usually has on steel consumption," he argued.

At the same time, China's auto production in October gained 0.9% on month or 11% on year to 2.6 million units, according to data from China Association of Automobile Manufacturers, and October marked the seventh straight month that monthly vehicle production recorded an on-year rise, the association said.

Written by Anna Wu, wub@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.

Photo: World Steel Association