Analysis: China rebar margins hit 2-year high amid signs of strong price support in Q2



Domestic rebar at highest level since April 2019

Excavator sales hit record high in March

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Melbourne —
China’s domestic rebar margins reached a two-year high of $117.9/mt April 7 on the back of strong rebar spot prices and a slight easing of iron ore input costs, S&P Global Platts data shows — and bumper sales of excavators in March indicate a strong pipeline of construction activity, which should keep rebar demand and prices well supported throughout the second quarter.

Rebar sales in the Beijing spot market have risen by 28% since the start of the year and by 15% since the start of March, reaching 5,280/mt ($806/mt) on April 7.

Historical monthly average steel data shows there is no clear trend for rebar in the April-June quarter compared with Q1, as rebar prices tend to be volatile and heavily influenced by futures. This is despite April and May being seasonally strong months for domestic construction activity in China due to conducive weather conditions, before weakening in June as the weather heats up.

However, Q2 this year is shaping up to be different, given the market is pricing in expected supply shortages caused by the steel in Tangshan and potentially other cities and regions. Further, the steel market globally is enjoying a buoyant period as economies recover, aided by government stimulus measures and pent-up demand.

In March, sales of excavators in China rose by almost 46% year on year to 72,000 units, according to the China Construction Association. This was more than double the 28,300 units sold in February and a monthly record. Excavator sales are widely seen as a forward indicator of construction activity.

Platts Analytics expects steel demand from property construction to be decent in the first half of 2021 before Beijing’s tightening measures are felt in H2. Property steel demand in 2021 could drop by as much as 8.7 million mt from 2020.

Meanwhile, infrastructure construction will continue to be constrained by local governments deleveraging, while any slowdown in property will undermine land prices and purchases, further limiting the ability of local governments to fund infrastructure projects.

The strong upward momentum in Chinese steel prices is therefore likely to ease in H2 due to expanding iron and steelmaking and potentially slower steel demand.

S&P Global Ratings has forecast that China’s residential sales will be “roughly flat” in 2021, with prices dropping by up to 5% on year due to government cooling measures

Platts’ China steel mill margins are based on the latest finished steel price with a three-week lag for iron ore prices. The 62% Fe iron ore fines benchmark (IODEX) dropped to around $160/mt CFR China from mid-March after almost touching $180/mt earlier in the month.

Mill margins are benefiting from the lower costs, but the strong steel prices and margins are pushing up iron ore prices again.


Paul Bartholomew

Analyst Jing Zhang


Wendy Wells



Source: Platts


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