Market: Some volatility seen in China rebar prices in H2
Source: Mysteel
Jun 28, 2018 17:30
Chinese rebar prices will likely experience some volatility during the July-December half of this year, prompted by the conflicting forces of rising supply and government-forced production cutbacks, according to market watchers attending the 3rd China Ferrous Derivatives International Conference held in Shanghai, East China last week.
On the one hand, the healthy margins that steelmakers are currently earning will see mills continue cranking up production during the coming half, predicted Wan Chao, a Mysteel Shanghai-based long steel analyst, who warned delegates of the inevitable downward pressure on rebar prices this would cause.
A local steel trader attending the conference agreed, saying that rebar prices may see declines in the short term given that no strong national policy is in place that would support prices. “But in the long term, it’s still impossible to see any sharp falls,” she told Mysteel.
The recent history of the Chinese market for these bars saw two notable rebounds in price in June and November last year, both mainly caused by the tightness of market supply. The fomer surge lasted for nearly three months, with prices increasing by a total of Yuan 597/tonne ($94.7/t), as Mysteel’s data shows. Then in November, prices surged again in a 6-week climb which added an even larger Yuan 874/t increment to domestic rebar prices.
Since the beginning of this year, the market has seen two corrections, with the first appearing around the middle of January mainly triggered by jittery traders opting to keep inventories as thin as they dared as market trends were unclear. The second price retreat occurred in early March after the Chinese New Year holiday break when demand had failed to recover as fast as some had hoped. At that time too, dealer concerns about intensifying Sino-US trade friction saw traders more willing to compromise on prices.
“For us, the high stocks have been our biggest headache since the start of the year,” a rebar trader based in Xiamen city, South China’s Fujian province, admitted on the conference sidelines, saying his company has been much more careful to keep stocks at a reasonable level this year. “Steel prices shouldn’t decline too much in the rest of the year,” he told Mysteel. “It’s still possible we’ll see a pick-up after the traditional heavy rains and high-temperature in summer – especially if the impact on supply caused by the environmental protection checks is significant.”
This trader is not alone in trying to keep stocks under control. Mysteel’s latest survey of construction steel stocks held by dealers in China’s 35 major cities and at 139 steelmakers nationwide showed that inventories have been on a relentless 14-week decline to reach 6.1 million tonnes as of June 15. This was also a near 24% decline since mid-May, equivalent to 1.9 million tonnes.
Retail stocks of rebar posted their sharpest single-week fall during April 13-19, losing 631,400 tonnes, according to Mysteel data, while at the same time, that week’s output of rebar nationwide hit a four-month high at 3.13 million tonnes. Two factors converged to produce this, according to market watchers, the first being that most construction contractors had delayed the start of building after winter (and thus the ordering of steel) because steelmakers – especially those in North China – were only just beginning to ramp up production after the curbs on output for clean air over winter were lifted around mid-March. The second factor, though parallel, was that some steelmakers in North China were forced to constrain production while Beijing hosted the so-called “Two Sessions” meetings over March 3-20, namely the 13th National People's Congress and the National Committee of the Chinese People's Political Consultative Conference.
As a result, the country’s demand for rebar was delayed until April-May this year but since then has remained largely robust, a consequence of which is the marked decline already witnessed in China’s rebar exports amid the high offer prices exporters are demanding. As of June 28, traders were offering rebar for export at $620/t FOB, up by nearly 28% or $135/t on year. Mysteel’s Wan predicts a one-third decline in China’s rebar exports this year, with the total volume reaching about 4.68 million tonnes.
Regarding the Chinese market generally, Wan told delegates at last week’s conference that the outlook is positive. “The rise of Sino-US trade friction and the slight rebound in rebar stocks currently has engendered a wait-and-see sentiment among steel traders, but I think we should not be too pessimistic about prices,” he said. The central government’s commitment to identifying environmental protection facilities at steelmakers and where necessary, mandating upgrades, will keep steel supply tight, he argued.
Mysteel’s national average benchmark price of HRB 400 20mm dia rebar stood at Yuan 4,116/t including the 16% VAT as of June 27, higher by Yuan 372/t or 9% on year, according to Mysteel Data.
Written by Rebecca Zhu, rebeccazhu@mysteel.net.cn
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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