Rebar prices underpinned by lower supply, eased impact of wet season

SHANGHAI, Jul 7 (SMM) – Rebar fundamentals are in recovery as supply declines and pressure from the rainy season on downstream demand eases. This, together with strength in rebar futures, will support spot rebar prices this week.

The upsides room of prices, however, will be limited as overall stocks linger at high levels and demand in some Chinese regions remains depressed by rainy weather. 

Rebar supply is expected to edge lower in the near term as profits decline and inventory pressure grows at steelmakers. Some steelmakers have already turned the molten iron which was originally used to produce rebar to HRC production. The capacity shift is expected to affect rebar output by 200,000 mt, according to SMM preliminary estimates. 

Besides, the pressure of in-plant stocks and production losses are likely to drive EAF mills to lower operating rates. SMM research showed that the operating rates of 34 independent EAF steel mills in China further decreased last week, to 77.73% as of June 30, down 4.24 percentage point from June 23, following a drop of 0.59 percentage point in the previous week.

Overall demand has slightly improved as the wet season ends earlier in the east Chinese region. Domestic areas experienced heavy rainfalls have narrowed even as wet weather in most other regions, in central and south-west China in particular, continued to deter the release of end-users demand.

Domestic demand is likely to rebound as the volume of rainfall is expected to decline sharply in the second half of July.