China Flat-Rolled Steel, Part 1: Prices Weaken as Hot and Rainy Season Begins

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(Editor’s note: This is the first of a two-part series examining Chinese flat-rolled steel prices. The first part examines historical steel price trends. The second part, which will be published Tuesday, will cover the economic outlook for China.)

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Chinese steel prices started to weaken in late May and continued to decline into the second week of June (after generally increasing this year).

A seasonal steel price change typically happens at the start of the summer due to the change in weather, which impacts construction and, therefore, steel demand.

Source: MetalMiner data from MetalMiner IndX(™)

Looking at the longer-term pattern since 2016, prices have dipped around the June time frame and tend to correct or show a clear change of the longer-term direction in July.

Theoretically, demand starts to pick up again as fall seasonal restocking picks up, supporting prices. However, in some years, demand may fail to pick, vis-a-vis available supply (as in 2015, when prices kept falling).

In 2018, the seasonal pickup did not last long. Prices turned down again by October, although they stayed relatively flat overall.

Source: MetalMiner data from MetalMiner IndX(™)

From a longer-term perspective, prices continued to increase overall when considering the period since mid-2015, as shown in the chart above. Considering January 2017 forward only, prices have moved sideways overall.

HRC, CRC and plate prices mildly increased in the first quarter, but the rate of increase looked weaker during 2019 than in previous years. More recently, all three prices have grown weaker; CRC for example, only increased into March and grew weaker by April.

Chinese HRC prices dropped slightly in early June after generally rising since the start of the year and into late May. Government stimulus measures have not provided price support lately, although additional support measures, especially continued fiscal stimulus measures and tax cuts aimed at providing support to the economy during the second half of 2019 and into 2020, could provide support.

CRC prices dropped again between May and early June, by 3%, to CNY 4,111/mt, down by around 5% from the short-term April high of CNY 4,331/mt. With CRC prices dropping more steeply of late, the China HRC-CRC spread narrowed to CNY 191/mt.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

As pointed out in MetalMiner’s June Monthly Metal Buying Outlook, CRC prices suffered from a supply glut due to blast furnace restrictions that led producers to invest in downstream production, like CRC and HDG, instead of HRC.

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