China steel prices rise as other key markets stabilise

Chinese prices for steel coil and rebar rose in Shanghai today, stoking positive sentiment among market participants following a halt to price decreases across several major global finished and semi-finished steel markets this week.

Recent stimulus measures in China, the lifting of national lockdown measures set for next week and higher demand today all raised expectations that global steel pricing could strengthen in June.

Stimulus measures announced by the central government in the second half of May are now likely to be implemented at a faster pace in the coming months to stabilise the economy, and cities such as Shenzhen have announced plans to provide subsidies to consumers of new energy vehicles and household appliances in order to accelerate the economic stimulus. There was an improved demand outlook last week after China reduced property loan interest rates for first-time home buyers, which indicated a shift towards supporting the property sector.

The ease of Covid-19-related lockdowns will also speed up logistics movements. The lockdowns were the main reason behind China's low April economic data and the halt to stimulus measures in infrastructure and manufacturing. China's latest fiscal and monetary policy released last week — potentially strategically timed for next week's easing of restrictions — should support infrastructure and manufacturing investment.

Shanghai mainstream hot-rolled coil (HRC) ex-warehouse prices rose by 60 yuan/t to Yn4,760/t today. October HRC futures rose by 1.78pc to Yn4,698/t.

Shanghai mainstream rebar prices rose by Yn50/t to Yn4,730/t. October rebar futures increased by 2.26pc to Yn4,576/t. Trade in the physical market improved, with some buyers believing prices have bottomed out after falling for almost two months.

Argus' Shanghai domestic steel rebar assessment hit Yn4,680/t ex-works on 26 May before rising today, which was exactly the price that it hit on 25 February this year before a strong rebound. Market participants put this down to coincidence and said the price on 26 May provides more of a firm footing for a prolonged rebound than the February bottom because of the heightened room for increases following major national lockdowns and because Chinese mill profits have fallen to Yn0-Yn100/t compared with mills' profits of Yn300-400/t in February.

Iron ore prices have also started to strengthen over the past two weeks. The Argus 62pc iron ore fines cfr Qingdao assessment increased by $3.35/t to $134.65/t today, up by $8.05/t from a four-month low on 18 May.

The increased prices for Chinese steel this week have coincided with a halt to decreases in other major global steel markets. A major driver for this price support is that many global steel buyers' stocks are low following Chinese lockdowns and global inflationary pressures resulted in six weeks of weak global steel demand. The continued elevated cost of production for global steel mills has also curbed further decreases.

Several of Argus' longs steel and semi-finished steel assessments that typically react most rapidly to shifts in the global ferrous complex movement all stabilised this week after continuously falling since the start of April.

The Argus weekly Turkish domestic steel rebar assessment on 26 May increased by 400 lira/t to TL14,600/t ex-works, including value-added tax (VAT), equivalent to $754/t ex-works, excluding VAT, up by 90c/t. It had fallen from $924.20/t ex-works on 14 April through to 26 May.

The Argus daily steel billet fob Black Sea assessment has been flat at $595/t fob since 20 May after falling on a virtually continuous basis since 1 April, when it was at $790/t. Negotiations between China and Russia for CIS billet in the middle of this week also showed how prices in other geographies have fallen more sharply than in China, which looks to have built an arbitrage opportunity for Chinese importers.

The Argus weekly fob Black Sea rebar and wire rod assessments remained stable at $660/t fob and $720/t fob on 26 May, which is the first week in which they have not fallen since the beginning of this month.

Rebar is the most commonly traded steel product in global markets, and Turkey is the largest seaborne rebar exporter globally, making it a key driver for other steel markets in the near term. Turkish steelmakers received greater overseas rebar demand in the past week and today largely targeted sales prices that were $10-20/t higher than earlier in the week. Turkish rebar sales have been made in the past week to Costa Rica, South America, Yemen, Israel, east Africa, Senegal, Romania and Lebanon. This has increased Turkish scrap demand significantly, although high stocks among deep-sea scrap exporters is still putting scrap import prices under pressure.

By Alex Reynolds