FEATURE: Chinese rebar prices seen falling to 2-year low
In a recent interview with China Metallurgical News, regarded as the official voice of the China Iron & Steel Association, Shen warned that average rebar prices will very likely to retreat to below Yuan 3,500/tonne ($514.7/t) this year. The last time the national rebar price fell below that level was in April 2017, according to Mysteel’s database.
The severity of the blow such a price slide would deal the industry would be huge. Rebar remains by far the most important steel item Chinese mills produce, accounting for 19% of total output of finished steel products in 2018, equivalent to about 210 million tonnes, according to data from China's National Bureau of Statistics.
“Domestic suppliers enjoyed considerable profits making rebar last year which encouraged them to shift their attention to producing rebar above other steel items,” a Beijing-based market insider recalled. “However, these days with the uncertain demand situation for long products, some of the makers cannot be certain that their business performance this year will remain positive.”
As of February 19, the national average benchmark price for HRB 400 20mm dia rebar reached Yuan 3,993/t including 16% VAT, down by Yuan 8/t day on day and by a huge Yuan 735/t from last year’s peak reached on October 31, according to Mysteel’s daily price tracker.
The problem the mills face is that the slowdown in economic growth both in China and globally forecast for this year will likely contract key Chinese long-product consuming sectors such as property development and civil engineering and construction for public works, the two biggest rebar consumers in the country. Rebar demand would take a massive hit, Mysteel notes, with a tumble in price being inevitable.
In his CMN interview, Shen warned that the impact of this is already being felt by those steelmakers whose balance sheets were precarious, saying many mills have been losing money since November 2018 due to the slide in rebar prices since then. Worse, he warned that about one third of Chinese steelmakers will suffer losses if the VAT-included physical rebar price falls below Yuan 3,500/t.
“It will be hard for the steel industry to enjoy a better performance this year than 2018, and this year, steel prices will present more drastic fluctuations than last year while actual demand both at home or abroad remains shrouded in mist,” Shen commented.
Last November was a troubling month for the domestic steel industry as both makers and traders experienced nonstop free falls in almost all steel prices, Mysteel notes. For example, the national rebar price as assessed by Mysteel during that month slumped by Yuan 722/t, the largest single-month decrease throughout all of 2018.
Moreover, the market rout directly squeezed the profits that the mills were earning, with the average margins on rebars achieved by the 91 major integrated makers Mysteel tracks shrinking to just Yuan 320/t in November, lower by a massive Yuan 709/t compared with margins the month before, according to Mysteel’s database.
This year, market price fluctuations across all finished steel items will be most pronounced in rebar, the most representative and sensitive steel item in China, pundits predict.
Complicating matters is the fact that Chinese mills seem to be trying to defend market share by stepping up output.
The extent to which China’s steel sector is oversupplied will become more obvious this year as domestic crude steel output is seen rising further, Shen pointed out, estimating that total crude steel production might break 950 million tonnes. Should construction steel demand continue softening as predicted, the consequences this would have for rebar prices will be dire.
In 2018, China’s total crude steel output hit an all-time high of 928 million tonnes, up by nearly 7% from 2017 and making for the fastest annual growth for the past three years. Not surprisingly, the capacity utilization rate in the steel industry reached 78%, up by 2.2 percentage points over the year, the largest rise in growth since 2014, according to the database of China’s National Bureau of Statistics.
Written by Venus Wang, wangyi@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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