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For instance, prices for major steel product reinforcing bar (rebar) have risen continuously during the week.
Fastmarkets’ daily price assessment for rebar domestic, ex-whs Eastern China was 3,120-3,140 yuan ($438-441) per tonne on Wednesday, up by 60 yuan per tonne from 3,060-3,080 yuan per tonne on September 6.
The latest assessment marks the third consecutive daily increase after steady declines since late August.
Despite this more positive performance of late, a bearish undercurrent remains in the Chinese steel market. Fastmarkets explores the four main reasons said to be behind this.
Market participants in China’s ferrous market told Fastmarkets that it is unlikely for steel demand to improve in the remaining months of 2024.
This is despite the fact that September and October are typically the peak months for steel demand in China – though this seasonal phenomenon has not been seen for several years due to the continued poor performance of the Chinese property sector.
It has been [commonly acknowledged] that ‘Golden September and Silver October’ for steel demand will not come.
China’s property sector has continued to struggle in 2024. For instance, sales among the top 100 property developers in the country declined by 2.43% month on month in August and were down by 22.1% from August 2023, according to a local industry research institute.
At the same time, China’s infrastructure sector, which market participants had held high hopes of boosting steel demand, has also disappointed.
Indeed, the country’s Ministry of Finance (MOF) recently urged local governments to restrict the local bond issuance for funding infrastructure projects from September 1 to reduce debt risk.
“Some local governments are experiencing fiscal deficits and they are having difficulties in paying for construction steel on time. The final payment of some contracts could be delayed by about one year,” another trader dealing with rebar said.
This weakened demand for steel products has made mills reduce their production, in turn cutting their demand for raw materials like iron ore, coke and ferro-alloys.
“The continuously sluggish and unimproved property market has directly led to a decrease in steel demand and lower steel mill tenders. A large number of steel mills across China have chosen to suspend their production and have facility maintenance during this summer,” a China-based vanadium source said.
“Less steel production means less demand for upstream raw materials, including ferro-silicon [and] vanadium. Many steel market participants or the upstream raw materials producers or traders hold quite pessimistic views on the steel demand at least in a near term,” the vanadium source added.
Rising international trade protection measures against Chinese steel and downstream products have also put pressure on China’s ferrous markets.
Vietnam, a major buyer of Chinese steel products launched an anti-dumping probe into China-origin hot-rolled coil.
At the same time, Turkey has imposed a 20.56-57.75% tariff on HRC produced in China, while Canada will start imposing a 25% tariff on China-origin steel from October 15 and a 100% tariff on electrical vehicles from October 1.
“As the biggest supplier of steel product to the international market, Chinese exporters will either reduce export prices or reduce export volumes due to the trade cases. Both options will put pressure on steel mills,” an exporter in China said.
Fastmarkets calculated its steel hot-rolled coil index export, fob main port China at $448 per tonne on September 11, down by $18.67 per tonne from $466.67 per tonne on August 30, and down by $98 per tonne from $546 per tonne on September 11 2023.
An industry analyst noted that Chinese steel mill margins are currently negative, expressing concern that losses will grow if mills do not reduce production.
Market sentiment has also taken a hit from the recent trade cases, sources told Fastmarkets.
“I also heard some market participants have [expressed] concern over the China steel export market as we can see some direct or indirect anti-dumping investigation now and then. Even though those occasional investigations do not lead to a direct decrease in steel exports, it, more or less, has hampered market confidence,” a ferro-silicon source said.
US economic policies, namely import tariffs or interest rate changes, also play an important role in driving prices for Chinese steel and associated upstream products, market sources told Fastmarkets.
China exports steel and downstream products like automotives and home appliances to the US, so the latter’s economic policies are critical to Asian steel market participants, sources added.
“Whether the world’s largest economy, the US, will raise import duties of steel and its downstream products will be key for the Asian ferrous market,” a second exporter in China said.
“[US presidential candidate] Donald Trump has been advocating for increasing import tariffs to bring manufacturing back to the US. If he wins the presidential election [in November], there might be higher import duties on steel,” a third exporter in China said.
During his presidency from 2017-2020, Trump imposed tariffs on Chinese steel and aluminium.
Besides this, following a slew of weak manufacturing and employment data from the US, investors are increasingly betting on the Federal Reserve cutting interest rates in September.
For example, the US manufacturing purchasing managers’ index (PMI) for August was 47.2, up by 0.4 from 46.8 in July, but the August reading marked the fifth consecutive month that the PMI was below 50 – the level that separates industry expansion from contraction, according to data from the Institute for Supply Management.
The increased expectations of a cut to US interest rates were said to be another cause for concern among ferrous market participants in China.
“The [rate cut] expectations caused a decrease in commodity prices in the Chinese futures market in the first week of September, and may put further downward pressure on commodity prices,” a second industry analyst said.
For instance, the most-traded January rebar futures contract on the Shanghai Futures Exchange (SHFE) declined for five consecutive days over September 2-6. The contract closed at 3,051 yuan per tonne on September 6, down by 236 yuan per tonne from 3,287 yuan per tonne on August 30.
The second industry analyst said market participants’ expectation for a cut to US interest rates was one of the main reasons behind the steel price drop during the first week of September.
Aside from the anemic demand from downstream industries, elevated stocks of ores and alloys in China has also worsened the bearishness tone in China’s ferrous market, according to sources.
Fastmarkets’ weekly assessment of manganese ore stocks at Qinzhou and Tianjin ports was 5.49-5.70 million tonnes on Monday, compared with 5.36-5.57 million tonnes on September 2.
Stocks are currently up by 21% from 4.57-4.67 million tonnes on July 29 and up by 28% from the 2024 low of 4.24-4.49 million tonnes reached on June 24.
“[Manganese ore stocks have] been rising for several weeks,” a manganese ore contact in China said, adding there is “no sign of a stop or fall, even though the summer lull is fading.”
Chrome ore stocks at China ports also increased last week, which further heightened the market participants’ concerns.
Fastmarkets’ weekly assessment of chrome ore inventories at the main ports of Tianjin, Qinzhou, Lianyungang and Shanghai were 2.29-2.49 million tonnes on Monday, compared with 2.10-2.15 million tonnes on September 2.
The latest assessment is 13% higher than the 2024 low, at 2.09-2.15 million tonnes on August 19.
“The higher chrome ore stocks are reasonable, given the increased exports of chrome ore from South Africa in July,” a chrome ore trader said.
Furthermore, stocks of ferro-alloys in China are also high, due to high capacity utilization rates and inactive restocking from the downstream steel industry, according to sources.
A second manganese alloy contact told Fastmarkets that silico-manganese stocks in the marketplaces of China were around 1 million tonnes on September 6, compared with a more usual amount of 600,000 tonnes.
Iron ore inventories at Chinese ports have also maintained an uptrend so far this year. A local industry information provider reported that major ports had 153 million tonnes of iron ore in their warehouses on September 6, up by 36 million tonnes from 117 million tonnes in the corresponding period of 2023.
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