China’s domestic rebar (16mm, HRB400E, Grade 3) prices fell by over RMB 1,000/tonne (t) ($148/t) since early May 2022 due to weak domestic demand and a sudden surge in Covid-19 cases.
Prices stood at around RMB 3,940/t ($584/t) on 18 July, a sharp fall of around RMB 1,220/t ($181/t) from the high levels of RMB 5,160/t ($765/t) seen in the first week of May, data maintained with SteelMint shows.
Factors weighing down rebar prices
- Weak demand: Domestic rebar prices have been declining mainly due to sluggish demand, especially from the country’s real estate sector. In addition, the fall in global prices has also weighed on rebar. Affected by weakened buying interest, the scope of production of finish-long steel has also reduced in recent times. The average daily production of hot metal in the blast furnaces (BF) of major steel mills has fallen for four consecutive weeks to 170,000 tonnes.
- Rising raw material inventories: Prices have witnessed a sharp fall owing to healthy output by mills amidst lower demand in the market, leading to rising inventories followed by a decrease in raw material prices. In the meantime, falling hot metal production indicates that there is little room for growth in demand for raw materials in the second half of the year (H2CY22). As per recent reports, steel mills have been adopting a destocking strategy for raw materials.
Outlook
With falling raw material prices and prevailing weak demand, domestic rebar prices are likely to decline in the short-to-medium term. However, the reduction in steel supply may become a deciding factor for prices. Also, in the first half of the year, the issuance of local government special bonds was completed, and the new government bonds floated from May to June received a record good response. So, the growth in infrastructure investments in the third quarter may also support market sentiments.
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