CHINA STEEL SPOTLIGHT: Plunging inventories fail to soothe economic jitters
Chinese steel prices have been rangebound in June despite plunging inventory levels, with trade war fears and economic jitters keeping market participants on the sidelines for most of the month.
Lower steel stocks held by mills and traders typically cause jumps in futures and physical spot trading prices, but this has not happened recently because Chinese market participants are still assessing the effects of new monetary policies rolled out by the central government, as well as the ongoing tit-for-tat trade war between the United States and China, before increasing business activity.
The People’s Bank of China cut banks’ reserve ratios on June 24 for the third time this year and kept interest rates stable, hoping for more liquidity and demand in the domestic economy, especially on the back of threats by US president Donald Trump to impose a new round of tariffs on Chinese exports.
The Metal Bulletin fob China hot-rolled coil index fluctuated within a roughly-$10-per-tonne range of between $588.69 per tonne on June 1 and $597.92 per tonne on June 20.
Domestic east China prices ranged between a peak of 4,310-4,330 yuan ($651-654) per tonne on June 13 and a trough of 4,220-4,250 yuan per tonne on June 27, according to Metal Bulletin data.
Domestic HRC inventories dropped by 136,000 tonnes to 1.7 million tonnes in June, according to data released by the China Iron & Steel Association (Cisa). This is down 7.4% on a month-on-month basis.
Spot market inventories dropped 110,000 tonnes to 1.49 million tonnes from May, while port inventories dropped 22,000 tonnes to 210,000 tonnes.
Chinese traders feel that supply and demand in the Chinese HRC market remain healthy despite the inventory losses and expect prices to gradually recover.
The Metal Bulletin fob China rebar index has also kept within a tight range this month, hovering between $548.75 per tonne on June 1 and $559.39 per tonne on June 25.
Rebar prices in east China fluctuated between 3,940-3,970 yuan per tonne on June 5 and 4,140-4,180 yuan per tonne on June 14-15.
This was despite a drop of close to a million tonnes in rebar inventory levels in June. The 20.9% drop in stockpiles led total market rebar inventory to close the month at 3.76 million tonnes.
This is the third consecutive month of sharp declines in rebar inventories since hitting a peak of 7.26 million tonnes in March.
Spot market inventory was 3.66 million tonnes, down 970,000 tonnes from last month. Port inventory levels were at 110,000 tonnes, down 22,000 tonne from a month earlier.
Market participants expect inventory levels to increase in the next couple of months amid softer demand during the summer period.
The movement in wire rod prices have not been pronounced either, although both export and domestic prices ended June slightly higher on lower inventories.
Export prices increased from $570-575 per tonne fob China on June 5 to $580-585 per tonne fob China on June 26.
Domestic east China prices climbed from 3,930-4,070 yuan per tonne on June 1 to hit a peak of 4,050-4,100 yuan per tonne on June 22, before ending the month almost flat.
This was partly caused by environmental inspections in northeast China, which had reduced wire rod operating rates and led to inventory decreases.
A smuggling crackdown also had traders staying away from the wire rod spot export markets due to logistical issues, causing a reduction in the volumes of spot cargoes offered to regional buyers.
The total inventory for wire rod was 1.35 million tonnes in June, down 500,000 tonnes, or 27.2%, from a month earlier..
Spot market inventory was at 1.26 million tonnes, down 493,000 tonnes month on month, while port inventory was at 90,000 tonnes, down 12,000 tonnes from a month earlier.
Export prices kept steady at $615-625 per tonne fob China between June 5 and June 26 due to a lull in overseas demand.
Domestic east China prices dropped by 100-150 yuan per tonne in the month of June as they ranged between the peak of 4,400-4,500 yuan per tonne hit on June 8 and the trough of 4,300-4,350 yuan per tonne on June 22.
Total plate inventory levels dropped by 37,000 tonnes to 1.05 million tonnes in June, down 3.4% from a month ago.
Inventory in the spot market totaled 910,000 tonnes, down 40,000 tonnes from May, while port inventories increased by 3,000 tonnes to 140,000 tonnes.
Trading in the domestic plate market has been stable, while only a limited number of deals were heard in the export market in June given that Chinese plate mills continue to enjoy higher profit margins in the domestic markets than on export orders, a market source said.