Domestic Billet Market Price to Dip First Then Rally in August
Domestic billet prices fluctuated lower in July amid weak supply and weak demand across the board.
On the supply side, blast furnace operating rates and capacity utilization of steel mills stayed relatively high at the start of the month. In late July, more steel mills launched mid-year maintenance alongside production curbs, driving down operating rates and hot metal output, which in turn reduced billet supply.
On the demand side, re-rolling mills sustained prolonged losses. Coupled with sluggish sales of finished steel products and mounting inventories, more re-rolling plants halted production, dragging down capacity utilization and cutting billet consumption.
On the cost side, sliding steel prices amplified production pressures for steelmakers, widening their losses month on month.
Market sentiment remained cautious with most participants adopting a wait-and-see stance.
Domestic Billet Prices Fluctuated Downward in July
Billet prices trended lower alongside volatile rebar futures, yet shrinking billet supply kept spot billet prices relatively resilient and widened the futures-spot basis. Mounting cost pressures at steel mills also offered incremental support to billet prices.
In addition, China’s billets lost export price competitiveness in July, while overseas markets entered their off-season, resulting in fewer new export orders. Though inquiry volumes picked up slightly later in the month, actual export transactions remained thin, delivering little support to domestic billet prices.
Steel Mills’ Losses Widen amid Rising Cost Pressures
Raw material prices diverged in July: iron ore edged down slightly, while coke prices retreated after a prolonged rally.
Survey data shows that average tax-exempt hot metal costs and tax-inclusive billet costs at major sample steel mills in Tangshan kept climbing due to raw material price movements and facility maintenance. Meanwhile, falling billet prices further expanded steelmakers’ losses. Currently, steel mills are strongly inclined to hold prices, which provides partial support to billet valuations.
Supply Continues to Shrink While End-User Demand Remains Subdued
As of July 31, the daily external billet sales volume of 21 sampled mills in Tangshan and surrounding areas stood at roughly 26,700 tons, a month-on-month drop of 14,900 tons. More blast furnace maintenance diverted hot metal to finished steel production, leading to weekly declines in billet external sales.
The average daily billet consumption of 34 sampled re-rolling mills in Tangshan hit approximately 28,600 tons, down 10,200 tons month on month. Downstream re-rolling mills endured persistent profit losses, compounded by slow product shipments and finished goods inventories hitting yearly highs. Increased maintenance and production halts kept billet demand at a low level.
Mild Drawdown in Billet Inventories
Overall billet inventories maintained a downward trend in July. Despite production suspensions at re-rolling mills, supply lagged behind demand, creating a supply-demand deficit, while local billet stocks were continuously shipped out to neighboring regions. Inventories at ports rose in isolated weeks only due to concentrated loading of export cargoes.
Tracking consistent statistical coverage, billet stocks at major Tangshan warehouses and ports totalled 1.7823 million tons, falling by 35,200 tons week on week.
Outlook for Next Month’s Billet Market
China’s billet market is set to follow a dip-then-rally trajectory in August. Billet prices may stage a periodic rebound in mid-to-late August, yet the rebound will be limited in both magnitude and duration, as fundamental conditions are not yet ripe for a full trend reversal.
In early August, the market will still be weighed down by the demand off-season: downstream re-rolling mills will continue to see weak sales and maintain cautious purchasing, only restocking to cover rigid operational needs. Meanwhile, blast furnaces at steel mills will resume production gradually, pushing up external billet supply.
The market is currently in a policy lull, and a breakdown downtrend in black commodity futures has dampened market sentiment. These combined factors may send billet prices on a volatile downward track. Nevertheless, tight spot supply stemming from low current billet output will underpin prices and limit sharp declines.
In late August, a gradual recovery in downstream demand is expected to lift finished steel sales at re-rolling mills and boost their capacity utilization, driving up billet consumption and halting price declines for a mild rebound.
All in all, market contradictions will intensify in August. Billet prices may edge down first before staging a modest recovery on marginal demand improvement, with overall price fluctuations confined within a narrow range.