Posted on 03 Aug 2021
China’s domestic steel prices especially futures prices slumped on August 2 in response to Beijing’s call for “stability in supplies and prices of bulk commodities” at a top-level meeting chaired by Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee last Friday.
The meeting among the members of the Political Bureau of the CPC Central Committee on July 30 was to review the current economic situation and to identify the few core tasks for the second half of 2021, and no specific bulk commodity had been named in the remark about the stability, which could have well been about recent struggle with thermal coal and power supply shortage in China, analysts agreed.
China’s steel market sources, especially investors in the futures, however, had interpreted that steel must have been one of the commodities under the watch, and Beijing’s latest comment, thus, has shaken the prevalent confidence on the steel market, and domestic steel prices, with some room for downward correction especially in the futures prices, thus, fell, market sources commented.
The most-traded October rebar contract on the Shanghai Futures Exchange (SHFE), for example, slumped by Yuan 318/tonne ($49.2/t) or 5.55% from the settlement price of July 30 to close the daytime trading session of August 2 at Yuan 5,414/t.
“China’s steel prices have been rising recently mainly because of the growing market optimism on lower steel supplies in the future with curbing efforts from some provinces since July, though actual demand has been rather sluggish, and futures prices have been surging more substantially than the physical prices because of the sentiment,” a Beijing-based steel analyst commented.
China’s HRB400E 20mm dia rebar prices, for example, recovered about Yuan 500/tonne since a recent low on June 22, according to Mysteel’s assessment, while the SHFE’s most-traded rebar contract rebounded by about Yuan 900/t over the same period.
A Shanghai-based steel futures analyst shared the view. “China’s steel prices have been moving against the reality, which has shown the clear support from the sentiment, but the market is fragile in that it will be reacting to any possible policy signs, and Beijing’s general comment last Friday is more than sufficient to stir the market optimism,” he commented.
Both the sources agreed that the greater concern for Beijing could be that global iron ore prices might rebound strongly should China’s steel price continue strengthening because of the market optimism, and the downstream users, may again, face the challenges back in May when their steel procurement prices hit multi-year highs.
“It is not easy for the seaborne iron ore prices to come off $200/dmt on acknowledging China’s possible shrinking appetite, but the highly-concentrated supply globally could lead to strong and fast bounce should China’s domestic steel prices climb up further, though the concern may not be imminent,” the Beijing analyst commented.
As of July 30, Mysteel SEADEX 62% Australian Fines index dropped to $180.2/dmt CFR Qingdao, after having returned to the $200/dmt benchmark on June 1 and persisted above the level until July 28 despite the market anticipation on lower iron ore consumption for the remainder of this year.
At the meeting on July 30, Beijing also voiced its objection to treating “carbon emission reduction” as a campaign, and it, instead, should be dealt with systematically by finalizing the detailed and nationwide plan for the carbon emission peak by 2030 as soon as possible.
“The comment showed that the central government is against the provinces’ taking their own initiatives and rushing out some measures this year without much coordination, careful thinking, and a long-term vision,” the Shanghai analyst commented.
“Without looking into their own situation by just following the other provinces to cut their steel production could one of the wrong practices too to Beijing,” the Beijing analyst said.
Coal-fired power houses and steel mills are the top two carbon emitters in China, but provinces vary in technology and market share in these two sectors, so there should not be a “one for all” solution when carbon emission reduction from these two industries is concerned, he added.
Besides, “along the way, systematic and coordinated efforts nationwide will be more efficient, preventing the struggles such as what we are experiencing with coal and power supply at present from recurring,” the Shanghai analyst commented.
China has been struggling with electricity supply since the start of this year with extreme weathers, limited coal supply domestically while the heavy reliance on the coal-fired power and the shortage has deteriorated in summer, prompting Beijing to different power charges between peak and off-peak hours for the industrial enterprises, Mysteel Global noted.
Source:Mysteel Global
