SHANGHAI, Aug 3 (SMM) – By 10:30 am (utc +8), the most-traded rebar contract reported a fall of 3.5% to 5306 yuan/mt, and HRC edged down 3.9% to 5668 yuan/mt. By end of July, rebar and HRC all hit their record high of 5793 yuan/mt and 6185 yuan/mt respectively, but plunged opening August.
For HRC, the Political Bureau of CPC Central Committee stressed at the meeting on July 30 to secure supply and stablise prices of commodities, while avoid impractical carbon reduction. This meeting minutes cooled down the heated market combined with sharp fall of iron ore last week and hindered demand due to pandemic. While the iron ore prices rebounded yesterday, spot prices were still resilient amid expanded uptrend in coke and comparatively high prices of raw materials. However, since the prices and profits of HRC were both high, large transactions may not be possible. In the short term, the steel market will fluctuate at a low level, and the August key price range will further edge down from July.
For rebar, the decision to avoid impractical carbon reduction broke the strong market expectation for production reduction in 2H. Since the profit scheme of many steel companies changed subsequently, capital largely exit the market, pushing down prices. By Monday August 2, domestic rebar prices averaged at 5253 yuan/mt, down 118 yuan/mt than Friday July 30. Steel prices increase in July were mainly contributed by political production reduction, emergence of supply gap and alleviation in inventory pressure, overheated off-season market created by long capital. And after the newly-made decision, market engine will change back to fundamentals again.
From the fundamentals, a de-stocking period, powered by shrinking supply, appeared due to production reduction in traditional high-season of June and July, which is non-negligible as the production reduction was triggered by government policy. While the new decision was made with the purpose to stabilise prices while secure supply. August will see added selling pressure of spot. And the market trend will largely depend on the fulfilment of demand. Currently, the inventories are mostly held by the upstream and midstream. If the transferring from off-season to high-season falls behind expectation in Mid-August, then the pressure on capital will be laid on the selling side.
