China's construction steel prices seen rangebound in February

Construction steel prices in China may fluctuate slightly this month, according to Mysteel's latest monthly report on the sector, suggesting that support from the cost side may fade amid dropping prices of steelmaking raw materials. But on the other hand, recovering demand and expectations for positive macroeconomic policies after Chinese New Year (CNY) may lift market sentiment to some extent and see steel prices climb in tandem, the report notes.

Prices for steel longs witnessed a mild decline last month, as lower temperatures prompted building contractors to slow down or fully halt construction projects. On January 30, Mysteel assessed China's national price of HRB400E 20mm dia rebar at Yuan 3,316/tonne ($478/t) including the 13% VAT, down by Yuan 8/t from the level on December 31.

The daily spot trading volume of construction steel products comprising rebar, wire rod and bar-in-coil among the 237 Chinese trading houses under Mysteel's tracking averaged 83,721 tonnes/day last month, slumping by 14.5% or 14,149 t/d from the average level last December.

As for this month, domestic demand for construction steel will stay at the year-low level as most market participants will shut their businesses during the CNY holiday over February 15-23. Moreover, some end-users may extend their CNY vacations till March when the weather will be generally warmer and suitable for resuming outdoor construction work, according to market sources.

The plummet in actual demand brought a spectacular end to the three-month decline in retail construction-steel inventories, a trend which is set to persist this month, the report notes. The tonnage of rebar and wire rod held in commercial warehouses in the 35 cities Mysteel follows totalled 3.77 million tonnes as of January 28, jumping by 15.8% or by 513,800 tonnes from end-December.

Similarly, the combined volume of rebar and wire rod stockpiled inside the 137 surveyed Chinese steel mills also swelled by 7.4% or 133,800 tonnes on month to sum 1.93 million tonnes, also as of January 28.

As most steel mills could recently earn limited profits from selling long steel products, many adjusted their production plans last month to lift longs output for the slightly better returns available, the report pointed out. As such, some steelmakers allocated more hot metal to produce steel longs in late-January amid dipping raw material prices and the narrowing price spread between rebar and hot-rolled coil, according to the same report.

By end-January, weekly rebar output among the 137 Chinese steelmakers under Mysteel's coverage had mounted by 6.2% or 116,100 tonnes on month to around 2 million tonnes. Meanwhile, weekly output of wire rod among the 92 surveyed mills Mysteel checks held largely steady on month, edging up by a minimal 0.4% or 3,100 tonnes to 764,100 tonnes.

As for this month, profitability will continue to be the determining factor when steelmakers draw up their production plans, the report highlighted.  As such, some mills may ramp up production levels amid expected dips in steelmaking raw materials prices like iron ore and coke, while others plan stoppages to conduct year-end maintenance around the CNY holiday, which may influence output overall, the report suggests.

Consequently, long steel output may keep largely steady in February, with Mysteel predicting that weekly rebar production will fluctuate within the range of 1.9-2 million tonnes.

Source:Mysteel Global