Ferrous Products Prices Dropped as A Whole amid Weak Demand and Pessimism on Macro Front

SHANGHAI, Aug 18 (SMM) - Due to the sharp drop in apparent demand for construction steel and hot-rolled coil (HRC) this week, steel prices fell, which led to a sharp drop in iron ore prices. Ferrous products prices ushered in a great decline yesterday (August 17). 

According to the National Bureau of Statistics, the cumulative year-on-year decline in national real estate development investment from January to July expanded to 6.4%, the largest decline since March 2020.

And affected by the high temperature and the rainy season, the demand for steel has not yet been effectively improved. Furthermore, the latest figures show that the apparent demand for construction steel and HRC fell sharply this week. Therefore, the prices of rebar and HRC both plummeted as of August 17. The prices of rebar and HRC closed the session with losses of 3.5% and 3.37% respectively at 3,993 yuan/mt and 3,905 yuan/mt.

In terms of iron ore futures, it is not only affected by the contracting apparent demand, but also the rising supply of iron ore. In addition, the total amount of iron ore arriving at ports stood at 23.62 million mt, an increase of 0.3% from the previous session, according to SMM statistics. In the short term, the supply of iron ore will remain remain sufficient.

As such, iron ore futures also slumped with a loss of 4.34% to 684 yuan/mt yesterday, a new low in the month.

Iron ore:

The average operating rate of blast furnaces at steel mills rose 1.63 percentage points from a week ago to 91.97% as of August 17, SMM survey showed. The average capacity utilisation rate stood at 92.76%, up 1.66 percentage point from a week ago. The daily average pig iron production of sample steel mills was 2.22 million mt, up 39,600 mt from a week ago. The daily average pig iron production across China is estimated at 2.64 million mt, up 47,100 mt on a weekly basis. The demand has recovered slightly.

However, according to the macro data, the downstream demand is still muted, and the steel mills lack further pushes to ramp up the production. At present, iron ore prices are likely to remain rangebound amid sufficient supply and high social inventory, coupled with the fact that it will take for the macro policies to exert influence.

Rebar:

On the supply side, the average operating rate of electric arc furnaces in south-west China dropped 22 percentage points to 5% due to the impact of power rationing. The overall average operating rate dropped 8 percentage points from a week ago to 22.6%, leading to fewer supply of rebar. On the demand side, the terminals mainly purchased on demand, and most traders focused on selling with cautiousness on speculation. The overall demand was still very weak.

Looking ahead, the extremely high temperature has dragged on the recovery of terminal demand, while the supply is also constrained by factors like power rationing. Should there be no major bullish news in the short term, it is expected that the futures prices may continue to fluctuate within a narrow range.

HRC:

HRC inventory in Zhangjiagang rose further yesterday. In addition, the arrivals in Shanghai this week were relatively large, making it more difficult for HRC inventory to destock in east China, which will drag down HRC prices.

With the finalisation of the second round of coke price hike, the prices of HRC will carry strong cost support in the short term. Moreover, the recent power rationing across China has had a greater impact on electric arc furnaces, and the spread between rebar and HRC is expected to expand further.

Therefore, in the short term, the prices of HRC will still by subject to the macro front.