Since Sept’21, Chinese rebar futures have shown an upward trend, with the cumulative increase of the main Jan’22 contract exceeding 15%.
However, while demand for steel is growing steadily, supply has been significantly curbed. Crude steel output in Aug’21 was 83.24 mn t, a y-o-y decrease of 13%.
In the third week of September, weekly rebar output was at 3.07 mn t, against over 3.7 mn t in the same period last year. To achieve the annual rebar output not higher than last year’s goal, the weekly rebar output needs to be kept below 3.5 mn t in the next 15 weeks. As per the current production reduction efforts, the target can be easily achieved.
Inventory consumption
With steady growth in demand and reduction in production, it is only natural that steel inventories will get liquidated. Since mid-August, total rebar inventory has continued to decline. Mill inventory of rebar is at 3.06 mn t, the warehouse inventory is at 7.30 mn t, and total inventory at 10.36 mn t, a y-o-y decrease of 17.65%.
Steady growth in demand
The real estate industry, which consumes rebar, remains stable. However, the pandemic impacted the industry in 2020. The cumulative y-o-y growth rate in real estate investment in July and August, 2021 was 12.7% and 10.9% respectively, a significant drop from the y-o-y growth rate of 38.3% at the beginning of the year. However, in July and August, 2021, the cumulative two-year average growth rate in real estate investment was 8% and 7.7% respectively, a slight increase from 7.6% at the beginning of the year. Thus, demand for steel is also growing steadily.
The growth in export demand has not yet dropped. China adjusted its export tax rebates twice this year to increase export costs. This indicates supply of domestic steel is tight.
But, from Jan-Aug’21, China’s steel exports were at 48.104 mn t, a y-o-y increase of 32%.
The peak season for domestic steel demand, September and October, has arrived. Since September, the average daily transaction volume of building materials nationwide has risen to more than 200,000 tonnes (t), a significant increase from July and August.
Evergrande impact
However, the collapse of China’s largest real estate conglomerate, Evergrande, may upset the applecart. With Evergrande staring at a debt burden of $300 billion, which it is unable to pay, there could be a direct fallout on real estate steel, mainly rebar, demand. Especially since, real estate and infrastructure account for more than 50% of steel consumption in China.
Outlook
In the next phase, it is expected that the rebar market will still be in destocking mode, and inventory liquidation will increase significantly in September, which will support the price of rebar.
Shagang Steel increased re-bar prices by RMB 150/t ($23) for late-Sep’21 sales while billet prices in Tangshan rose RMB 20/t ($3/t) on 22 Sept’21.
The current spot price of rebar is above RMB 5,500/t ($851/t), and rebar futures are still at a discount, so there is no room for further fall in rebar futures, as per Langesteel. Rebar futures prices are expected to remain strong in the latter part of the year.
According to data maintained with SteelMint, the Chinese rebar futures contract for Jan’22 delivery closed today at RMB 5,605/t ($868/t), with w-o-w increase of RMB 64/t ($10/t).
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