MNI: China's Steel Futures To Rise Before Falling In Q2

China’s steel rebar futures are expected to edge higher in early Q2, supported by rising raw material costs linked to the Middle East conflict and seasonal demand, before easing on weak underlying consumption, analysts told MNI. 

The October contract on the Shanghai Futures Exchange, recently around CNY3,150 per tonne, is likely to trade in a CNY3,050-3,250 range in Q2, said Zhuo Guiqiu, senior researcher at Jinrui Futures.

Higher coking coal and coke prices, driven by demand for coal chemical products as substitutes for petroleum, along with increased iron ore shipping costs and the traditional March-April demand peak, should support prices early in the quarter, Zhuo said.

Iron ore prices may retain upward momentum in early April before facing correction risks later in the month as sentiment on geopolitical tensions ease and overseas shipments increase, adding to port inventories, said Xu Cuiyun, analyst at JLC Network Technology. “There is limited room for further price increases in iron ore, with historically high inventory levels and weak downstream demand,” said Xu, warning of a pullback after a surge if steel demand recovery and inventory reduction fall short of expectations. (See MNI EM: China Iron Ore Imports Resilient Despite Weakening Demand)

JLC analyst Ding Yuting also noted upside for coking coal and coke prices is constrained by low steel mill margins, ample domestic supply and imports from Mongolia.

“Raw materials can only provide a floor for steel prices rather than drive an upward trend,” said Guo Xinjie, analyst at JLC. She expects the October RB2610 contract to fluctuate between CNY2,800–3,300 per tonne, potentially remaining high in April before becoming more volatile in May and June if demand disappoints, and softening in the July-August off-season. 

Q2 DEMAND

Zhuo noted steel demand will remain subdued in Q2 compared with a year earlier despite sequential improvement, citing record-high housing inventory and declining steel intensity in infrastructure projects. (See MNI EM: China's Steel Futures Face Near-term Downward Pressure)

Infrastructure investment is expected to grow 8-10% this year under major projects tied to the 15th Five-Year Plan, supporting 2.8-5% growth in steel consumption, or an increase of 3-5 million tonnes, said Guo Yang, analyst at JLC. “This will provide a floor for rebar prices rather than a trend-driven boost,” Guo Yang said, noting infrastructure accounts for around 60% of domestic rebar demand but cannot fully offset weakness in the property sector.

EXPORTS

Disruptions to Iran’s steel industry could allow China, India and Russia to capture its 5-5.5 million tonne short-term supply gap in export market, according to a Mysteel report. 

China could absorb an additional 1.5-2 million tonnes annually, equivalent to 10-15% of its rebar exports but less than 2% of domestic demand, said JLC analyst Zhu Shanshan. While this may offer a temporary boost to prices through improved sentiment and order flows, it is unlikely to drive a sustained uptrend given weak global demand and volatile raw material costs, Zhu said.

Zhuo added the conflict could also reduce China’s steel shipments to the Middle East by around 20% conservatively, or more than 4 million tonnes, limiting any net benefit.