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SHFE rebar prices rise further, physical prices fall

The price of the most-traded rebar contract on the Shanghai Futures Exchange Friday, that for May delivery, finished the day time trading session higher again at Yuan 3,633/tonne ($526/t), up by Yuan 94/t over the week.

Yet again the futures market has diverged from spot rebar where Mysteel’s national average benchmark price for HRB 400 20mm dia rebar continues to experience a real winter of lacklustre demand and poor sales. By Friday this price was at Yuan 3,919/t including 16% VAT, lower by a total of Yuan 10/t week on week, according to the Mysteel daily tracker. The current price was even lower by Yuan 132/t from a year ago. 

The spot market doldrums contrast with rebar futures where the market is responding to a series of bullish signals contained in recent central-government policy announcements including the loosening of capital liquidity, approval of a basket of infrastructure building programs and softening controls on the property market, Mysteel notes. 

“All these are good news for investors in the rebar futures market in the long run whereas they had limited impact on the physical market which pays more attention to prevailing fundamentals, rather than as-yet unrealised hopes for the future,” a Shanghai-based steel sector insider remarked. 

Encouraging the futures market too was data showing the slow accumulation of retail inventories of finished steel, a development suggesting that steel traders have less appetite for replenishing stocks than is usual at this time of year.

The SHFE’s speculators took this as a sign that once the country reopens for business following next month’s long Chinese New Year holidays, there may be insufficient stocks of steel to meet the inevitable pick-up in demand as frequently occurs after CNY when temperatures are beginning to rise. Should this prove to be the case, rebar prices would be bound to improve, which is why the futures market has remained buoyant this week, Mysteel understands from the market. 

The steel stockpiles held by traders remained at historically low levels throughout the whole 2018, with that situation has changed little with the start of the new year. Rebar stockpiles among traders after four straight weeks of fast accumulation were still 1% lower from one year ago at 9.25 million tonnes as of January 16, according to Mysteel’s weekly stocks survey of traders in 35 major cities.

Written by Venus Wang, wangyi@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com