SHANGHAI, Oct 9 (SMM) - During the National Day holiday, the demand for raw materials in the steel industry chain remained stable. The average daily output of pig iron in steel mills stood high, and the prices of finished products rose slightly.
Iron ore
Ore trading during the holiday was relatively sluggish because of the buyers’ large amount of purchases before the National Day holiday. The market holds a bullish outlook for the transactions in the first week after the holiday. First of all, steel mills kept consuming their in-plant inventory during the holiday, and they will restock raw materials intensively in the first week after the holiday, thus the prices of imported iron ore will remain rangebound with some upward potential. In addition, the supply of domestic ore shrank in some parts of the country in October, hence steel mills may begin to purchase imported ore, which will also support the imported ore prices.
Coke
On the supply side, the mainstream steel mills in Shandong and Hebei provinces raised the purchase prices by 110 yuan/mt for coke dry quenching and 100 yuan/mt for coke wet quenching, marking the success of the first round of coke price hike. The profits of coke enterprises improved to a certain extent, but the prices of coking coal remained high, so the companies still spent high costs. At present, the shipments of coke enterprises are stable, and the coke inventory remains low.
On the demand side, the operating rates of steel mills were high and stable as the mills purchased coke on rigid demand amid the small increase in steel prices.
In general, steel mills’ demand for coke was better as their output of pig iron maintained high, thus the supply and demand of coke were balanced, but the sales of steel products were average. It is expected that coke prices will stay stable in the short term.
Rebar
During the Nation Day holiday, spot prices in various places generally rose by 20-40%. On the supply side, rebar output was basically stable. Production of blast furnaces in the south and central China was normal, and steel mills in Guangxi increased their production slightly. In Hebei, environmental protection-related production restrictions in Tangshan and Wu'an hindered the operation of sintering machines, but the impact on output was small. The profits of EAF mills have improved significantly, and those of mills in east China hovered around the break-even point. However, the mills were less willing to increase their production, and most EAF mills in south China and east China maintained low operating rates. The total output of building materials changed little before and after the National Day holiday. On the demand side, most of the construction sites got 1-3 days off, and they restocked some raw materials accordingly. Transactions have been made since October 4, and sites in east and south China purchased on rigid demand. Although the situation was not as good as before the holiday, the whole transactions were still acceptable.
SMM believes that the sharp rise in energy prices in the foreign markets during the holiday will push up the prices of overall bulk commodities. In the first week after the holiday, the terminal companies may restock somewhat, so the demand for rebar is likely to rebound. On the supply side, due to the production restrictions for environmental protection and the heating season before and after the important national meeting in October, the rebar production will grow limitedly, thus the steel prices may continue to fluctuate within a narrow range.
HRC
During the National Day holiday, prices of hot-rolled coils in various regions of China mainly rose by 30-90 yuan/mt. In east China, most markets resumed trading successively around October 8. During the holiday, the market saw fewer quotations and inquiries, and quotes in Shanghai and Zhangjiagang added 50-60 yuan/mt compared with those before the holiday. In south China, more companies resumed their work around October 6, and the prices in the Lecong market have risen by 40 yuan/mt compared with those before the holiday.
SMM believes that the supply and demand of hot-rolled coils in October may both grow. With the approaching 20th National Congress of the Communist Party of China (CPC), the market still has strong expectations for the macro-level stimulation of downstream consumption such as automobiles and home appliances. SMM predicts that the average price of hot-rolled coils in China may increase slightly in the first week after the holiday.
After the holiday, the pandemic outbreaks stroke many places in China again and is likely to spread further. Besides, around mid-October, a number of domestic and overseas macro data are about to be released, which may trigger the market's risk aversion to a certain extent. It is necessary to be alert to the risk of prices rising first and then falling.
