Chinese domestic and export flat steel prices surged in November 2020, with the export hot-rolled coil index rising to $592 per tonne during the month from $519 per tonne previously, and the monthly average increasing by 7.5% over October.

Economic activity in China continued to expand, with manufacturing output rising by 7.5% year-on-year in October, according to the latest available data. Demand from flat steel users has been particularly strong - for example, refrigerator production rose by 25.8% year-on-year.

Steel production also increased in an annual comparison but, despite this, inventories at warehouses have been steadily going down since early October, indicating strong demand through the whole of the supply chain, although stocks increased slightly in late November.

Given the enduring strength of end-user demand in China, the scarcity of HRC supply in the seaborne market, and the consistently high and rising iron ore prices, we have significantly revised upward our Chinese domestic and export flat steel price forecasts.

We still forecast that prices will hit their peak at the end of the first quarter of 2021, followed by a downtrend through most of the remainder of the year. But given the level of expected prices at the start of 2021, even with declines later in the year, price forecasts have been raised for all quarters of 2021 compared with forecasts published last month.

Chinese domestic and export rebar prices also rose on a monthly average basis, although domestic prices in Eastern China started to trend downward in the second half of November.

A price surge early in the month came against our expectations, but the latest available data indicated that the number of new residential floor-space starts rebounded in October, and construction sites continued to operate in November amid mild weather in eastern and southern China.

We expect that rebar prices will drift lower in December amid a seasonal slowdown in construction activity, before they rebound again in January-March 2021.

The recent steel price rally meant that Chinese mills’ profits started to improve, with HRC margins reaching $16 per tonne, rising from just above zero in October, while estimated real-time margins for rebar producers using the BOF-route averaged $20 per tonne after being negative for the previous three months.

But with Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao, surging to more than $140 per tonne in early December, cost-side pressure was likely to continue to keep steel prices high so that producers could maintain even modest profit levels, creating upside risks to our forecasts.

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