Posted on 11 May 2021
Both China’s most-traded rebar and iron ore futures contracts hit their daily price limits of 6% and 10% respectively during the daytime trading session of May 10, as the former trended up amid strong fundamentals and market optimism and the latter borrowed support from the former, Mysteel Global noted.
The most-traded October rebar contract on the Shanghai Futures Exchange (SHFE) hit its daily price fluctuation limit of 6% on Monday and closed at Yuan 6,012/tonne ($934.5/t), or surging Yuan 340/t from the settlement price of last Friday and having exceeded Yuan 6,000/t for the first time since March 27 2009 when the Exchange launched the contract.
In parallel, the most-traded September iron ore contract on the Dalian Commodity Exchange surged to Yuan 1,326/t when closing the Monday daytime trading hours, also having hit daily price limit, up 10% or Yuan 120/dmt from the settlement price of last Friday.
(Left: DCE Sept iron ore contract, source: DCE/Right: SHFE Oct rebar contract, source: SHFE)
The SHFE rebar price jump was partially due to the fact that the country’s national HRB 400E 20mm rebar price in the physical market, under Mysteel’s assessment, soared Yuan 162/t on day to Yuan 5,767/t including the 13% VAT on May 8, a make-up workday in China after the Labour Day holiday over May 1-5, or a new high since the assessment on March 3 2011.
“Recent surges in China’s domestic steel prices are attributed to three key factors including the anticipation of steel output cut for 2021, and based on the present situation, the steel production cuts, probably in H2, will be severe,” a Shanghai-based futures analyst said.
Besides, the “ever-rising raw materials prices have also led to higher steelmaking costs, and there is a concern on raw material supplies,” he continued, adding, “and last but not the least, the overall steel demand has been strong.”
On May 10, China’s National Development and Reform disclosed that it would review the results of the supply-side reform in trimming the country’s steel capacity, requesting all the local authorities to draft their steel production cut plans for 2021.
The trading volume of construction steel comprising rebar, wire rod and bar-in-coil among China’s 237 traders under Mysteel’s tracking averaged 296,531 tonnes/day over May 6-8, the first three working days in May in China, or much higher than 204,119 t/d on April 30.
“In a bigger context, all the bulk commodity prices have been rising on the more capital flow in the market, but when the end-users refuse to pay even higher prices, that will be the end of the uptrend,” the Shanghai analyst warned.
As for iron ore price surges, many market sources attributed to the support from the steel prices.
“We have raised out iron ore port inventories offering prices by Yuan 100/tonne this morning, bids from the domestic steel mills have been limited, but I am not concerned, as I can tell some mills have the actual need to maintain their steel output, and with high steel margins, they can afford to ignore the high raw materials prices in the end,” an iron ore trader from Shandong in East China commented.
Chinese traders usually raise their imported iron ore port inventories by Yuan 5-10/t to test the water, Mysteel Global noted.
Chinese steel market is also worried about the escalation in the Sino-Australia tension, a Shanghai iron ore analyst added.
“I am not sure whether this will really affect iron ore imports in the future...while for now iron ore stocks at the Chinese ports have been subsiding, while demand for higher Fe grade iron ore has been strong while supply is limited...It seems that up to now, no reason for iron ore prices to go down,” he added.
He called for clear-minded, though, in China’s ferrous market among the drastic price surges recently, especially in the futures market.
“All the ferrous commodities prices are at their multi-year or record highs, while the end-users are finding it hard to pay even higher, and when steel demand eases in the future or market sentiment reverses, speculators or hedge funds will act quickly to leave the market, and futures prices may crash,” he said.
Source:Mysteel Global
