Despite the seemingly strong performance in both output and price in rebar compared with the other finished steels, market sources tend to agree that the weekly rebar production is unlikely to follow a similar pattern of last year when the COVID-19 is seriously threatening both China’s and the global economic growth, market sources shared on April 22.
Rebar output among China’s 137 sampled mills has been on an uptrend since March and totaled 3.4 million tonnes during April 9-15, very close to the 3.6 million tonnes a year ago, which would probably be achieved in the last week of April, market sources agreed.
Market situation, however, is different from the last few years, making it unlikely for rebar output to repeat the pattern of steadily climbing up all the way, according to a Shanghai-based ferrous analyst.
“Steel mills may want to ramp up the (weekly) output to 3.5-3.6 million tonnes this year, and it may well be justified, but I do not think they have the incentives to attempt record high levels,” he said.
The weekly rebar output hit 3.8 million tonnes over June 6-12 2019, the record high since Mysteel launched the survey in February 2015.
Chart 1 Mysteel’s Weekly Rebar Output Survey over 2015-April 2020
Source: Mysteel data
For rebar, firm demand from the construction sector with property market in particular, has been a key booster, but “the global economic predicament because of the COVID-19 has made it impossible for China’s property market to experience an exceptionally good year as last year,” he added.
He Wenbo, chairman of the China Iron & Steel Association, echoed a similar understanding at a press conference on April 22 in Beijing.
“The government has emphasized again that property is not for speculative trading, so for this year, the market will remain largely stable though newly-launched property projects may post declines in area, but we still have 7 billion sq m that is under construction,” he said.
For the first quarter, China’s investment in the property market dived 7.7% on year to Yuan 2.2 trillion and the newly-launched property projects area slumped 27.2% on year to 282 million sq m, according to the official statistics.
Chart 2: The Growth of Investment in China’s Property Market
Source: NBS
Besides, a decent margin is usually a crucial factor for Chinese steel mills to plan out their steel production, while “apparently, their current profits are far from last year’s, making them feel less excited about stepping up output,” a Beijing-based analyst pointed out.
Mysteel’s monthly tracking showed that the 91 Chinese blast-furnace mills (BF mills) just climbed out of lossmaking in March, gaining an average of Yuan 49/tonne ($7/t) in rebar as against Yuan 2/t loss in February or in sharp contrast of Yuan 322/t for March 2019.
The low rebar margin, however, was not because of higher prices but because of declines in production costs thanks to lower prices of coke and scrap, Mysteel Global learned.
For the 91 mills, their average production cost dipped by Yuan 64/t on month to Yuan 3,379/t for March for rebar, as molten iron production cost dropped by Yuan 41/t on month to Yuan 2,230/t, both including 13% VAT, as reported.
China’s national daily price for HRB 400 20mm dia rebar, however, averaged Yuan 3,628/t for March, down Yuan 94/t on month or diving a larger Yuan 426/t on year. In April the price gap was still volatile and the price still fell Yuan 51/t on month to Yuan 3,621/t as of April 22, way below Yuan 4,260/t a year ago, according to Mysteel’s data. All the prices include the 13% VAT.
The chances for a strong recovery in rebar price is minimum, as the product is still under persistent pressure of high inventories, with the tonnage in 132 major cities totalling 16 million tonnes as of April 16 as against 10 million tonnes a year ago.
“The consistent fear of weak prices (of rebar) will curtain steel mills’ enthusiasm in producing too much,” the Beijing analyst concluded.
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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