Steel
Supply Uncertainties Galvanise Prices
September 2017
Chinese rebar and HRC prices maintained their strength in August, averaging US$639/t and US$608/t respectively. The Chinese rebar price has been above HRC since February 2017 on several dynamics. China’s monthly real estate fixed asset investment (FAI) has trended around 5-7% year on year for the past 12 months – the lowest annual growth rate for 12 months.

China’s Infrastructure FAI for January-August remains strong, up 21% year on year. The slowly cooling property market continues to be offset by booming government infrastructure spending which are both fueling Chinese domestic steel demand. The Asian rebar price averaged US$556/t for the month, up 13% from July and 58% year on year. Asian average HRC and CRC steel prices rose 10% and 13% in August respectively, to US$598/t and US$615/t, month on month.

On the 4th August 2017, the Chinese Central Government announced the 2017-18 Winter Air Pollution Plan, the plan states that there will be a 50% reduction in steel production and a 30% reduction in coke production based on installed capacities in 26 cities surrounding Beijing and Tianjin. AME expects this to equate to lost production in the affected provinces of up to 40Mt. Strong demand for steel, combined with supply side uncertainties will see both rebar and HRC prices continue to climb in the short term. The HRC price is expected to overtake rebar this month on the back of further supply uncertainties because of a fire at Benxi I&S’s BF#1 located in the north-eastern province of Liaoning. AME believes that steel producers in unaffected provinces will continue to break away from seasonal trends and increase production in the lead up to the winter cuts to take advantage of high prices and margins.

The iron ore price continued to rise in August, rising 14% to average US$75.5/t for the month. The spot premium hard coking coal price rose in August to average US$196/t for the month. The price is expected to stay above US$200/t in August due to continued tightness in supply, resulting from a slowdown in Chinese domestic production due to safety inspections and shutdowns as well as reduced export volumes from Australia.

Apparent finished steel demand in China increased in July to 68Mt, a 0.7% increase from June, this was underpinned by record production in the month of July despite modest growth in steel exports, inventory levels remain relatively low. Rebar stocks in China increased from 3.9Mt in July to 4.1Mt in August, while HRC inventories totalled 2.2Mt, sitting flat across the month.