China’s steel, iron ore markets retreat post-holidays as outlook cools

China’s steel and iron ore spot market prices retreated in early October from a late September surge, as the National Development and Reform Commission indicated no further stimulus during its Oct. 8 press conference, disappointing market expectations.

Platts-assessed domestic rebar and hot-rolled coil spot prices fell 1.84% and 1.37%, respectively, to Yuan 3,730 per metric ton ($528/t) and Yuan 3,590/t on Oct. 8, S&P Global Commodity Insights data showed.

Meanwhile, the Platts 62% Fe Iron Ore Index, or IODEX, dropped to $104.65/dmt CFR China on Oct. 8, down 4.45% day on day.

“After a sharp increase in steel and iron ore prices from Sept. 24 to Sept. 30 -- ignited by the recent fresh monetary stimulus, people are now finally realizing that nothing has changed on the steel demand side, so the retreat in steel and iron ore prices in (the) post-holiday market is within expectation,” said a mill source, referring to the Golden Week holidays from Oct. 1-7.

Several market participants said even with further monetary or fiscal stimulus, China’s steel demand is unlikely to trend upward due to a long-term structural downturn in the property sector.

“Even if the government could stop property prices from slumping further and stabilize new home sales within 2024, new home construction starts are unlikely to recover this year or even next year. Key problems for the steel industry have remained -- shrinking demand and overcapacity,” another mill source said.

Despite rising steel prices in late September, the uptrend of China’s pig iron and steel output has continued. The average utilization at China’s blast furnaces increased to around 85.6% as of Oct. 4, up by one percentage point from the end of September, and about three percentage points from the end of August, according to trade sources. The current blast furnace utilization rate was still about seven percentage points lower than a year earlier.

Specifically, rebar production has increased the most among other steel products since late September, as its price rises were the strongest due to market speculation. According to market sources, the weekly rebar output from Sept. 26 to Oct. 2 rose almost 10% from the previous week to 2.25 million metric tons, while the weekly hot-rolled coil output over the same period was up 3% to 3.06 MMt.

“The rising steel output, especially rebar, will definitely weigh on the steel market, as no improvement has been observed at end users, especially in the construction sector. The frenzy in steel prices cannot sustain,” said another mill source.

“As steel demand is unlikely to improve much, the growth of pig iron, crude steel or the rebar output is also unlikely to sustain, which I think, is partly why iron ore prices tripped on the first working day after the Golden Week holidays,” said the source.

With iron ore inventories at Chinese ports around 150 MMt, mills are less eager to procure immediately after holidays, according to sources and are adopting a wait-and-see approach as the market stabilizes.

“People were expecting more an uptrend in prices were still expected but it was evident things cooled down,” said a China-based iron ore trader.

Market chatter suggests the Ministry of Finance may announce further fiscal stimulus either in October or no later than year-end, including a higher deficit ratio and more government bonds.