Ann: 30 June 2024 Quarterly Market Update, page-6

China’s new rebar standards may deal another blow to domestic steelmakers

China’s revision of its national rebar standards, which is set to go into effect from September 2024, is expected to increase demand for vanadium nitrogen and silico-manganese amid a push for developing high-quality steel
July 30, 2024
By Jessica Zong, Tina Tong, and Jessica Long
Silico-manganese Steel Steel raw materials Vanadium
However, an increase in production costs for steel producers could potentially lead to a restructuring of the country’s rebar industry amid an ongoing real estate downturn, sources told Fastmarkets in the week ended Tuesday July 23.
Background

On June 25, China’s State Administration for Market Regulation announced new national standards for GB 1499.1-2024 and GB 1499.2-2024 plain round bar and reinforced bar.
The standards, which are revisions to those announced in 2018 and will be implemented from September 25 2024.
The new regulations will shift standards from recommendatory to mandatory. They will also adjust standards of tolerance, smelting, properties, package and implement stricter requirements on rebar quality.
For example, the tolerance for rebar with diameters of 6-12mm is 5.5% in 2024 standards, compared with 6% in the 2018 version. The tolerance for rebar with diameter of 14-20mm is 4.5%, compared with 5% in the 2018 version. For rebar with diameters of 22-50mm tolerance will be 3.5%, compared with 4% in the 2028 version.
“After the revisions in 2018, many large-scaled rebar mills had already gradually improved their steelmaking technologies and added alloys to meet the [quality] standards,” a contact at the China Ferroalloy Association said. “This time, with stricter implementation of the standards, only some small mills need to catch up.”
An industry source added, “The biggest change is the mandatory implementation of the standards. [Aside from this,] there will be both opportunities and challenges to full-scale implementation of the new [rebar] standards.”
In general, the policy is expected to be a net benefit to alloy and rebar markets, while there are still challenges and concerns worth addressing, a leading vanadium producer in China.
Opportunities

The strict implementation of new rebar standards is expected to boost demand for vanadium nitrogen and silico-manganese. It is also expected to lead to the creation of a premium for high-quality rebar products, according to market participants.
“Production of rebar with the new standards will increase per annum vanadium nitrogen consumption by roughly 15%,” the contact at the China Vanadium Association said. “That calculation is based on China’s 2023 rebar production volume.”
The vanadium producer added, “Even considering a possible yearly 10% cutback in rebar output amid the sluggish downstream property market, we, theoretically, project an additional monthly 900 tonnes of vanadium nitrogen consumption with the implementation of new rebar standard.”
The announcement of China’s new national rebar standards boosted confidence among vanadium market participants, which helped stop the downward trajectory of vanadium nitrogen prices, multiple vanadium sources told Fastmarkets.
“The current downstream vanadium market has been subdued and has witnessed no obvious improvement due to the sluggish property market. The new rebar standards will surely, to some extent, boost the demand for vanadium and increase the current lack of vanadium buying,” a China-based vanadium trader said.
Market participants indicated that the new standards are expected to improve demand for silico-manganese, albeit at a smaller degree than the vanadium market.
“No doubt, the new rebar standards will be good news for silico-manganese,” a China-based silico-manganese trader said. “There are still many rebar mills planning to use or add silico-manganese to fully meet the national standards.”
The trader source added that, “after the revised standard of rebar in 2018, the rebar yield pass percentage in China greatly increased, but there is still room to improve.”
“[The new standards will be] quite favorable for the silico-manganese market,” a second silico-manganese trader said. “However, the extent of the increase in demand [for manganese alloy] will be determined by the extent of the implementation of the standards.”
Market participants expected the implementation of the new standards to lead to higher production costs and diminished margins, which may prompt some some steel mills to reduce production rates temporarily before being able to pass on the increased costs to buyers.
“The oversupply will not be resolved by the implementation of new standards, but the downward pressure on prices will be slightly reduced,” a Shanghai-based rebar trader said.
Challenges

Subdued demand from end-use industries for rebar and the profitability of rebar mills when buying more alloys are expected to remain among the challenges facing the industry following the implementation of the new standards, sources told Fastmarkets.
“The expected increase in vanadium demand is based on unchanged rebar production,” the contact at the China Vanadium Association said. “However, the [possibility of] falling rebar output adds uncertainty to [how much vanadium demand will increase].”
According to China’s National Bureau of Statistics, the country’s rebar output in the first half of 2024 was 102.35 million tonnes, down by 11.7% year on year from 115.92 million tonnes.
“The rebar production in second half [of 2024] and beyond in China may continue to fall,” a manganese alloy producer said. “In other words, the increase of alloy demand following the new stricter standards may be diluted by the reduced rebar demand.”
In addition, the use of more vanadium and manganese alloy to meet the national standards will increase production costs for rebar mills, who widely have been running at tiny profit margin or even losing money, sources said.
“It will cost mills an additional 30-50 yuan per tonne to meet the mandatory standards,” the contact at the China Vanadium Association said. “The question then becomes: who is going to pay this additional cost? Steel mills or end users?”
A second Shanghai-based rebar trader indicated that it may be more likely for end users to absorb the increased rebar production costs.
“End users are suffering from thin profit, but they have to take the possible price rise to feed their daily consumption,” he said.
“The news of the new rebar standards…has been spread across vanadium market participants… it did help push up the weak vanadium price for some time, but later, the vanadium price still dropped since many market participants believed the revised rebar standards will not change the overall picture of declining downstream steel output,” a second China-based vanadium trader source said.
Actions

Trade houses actively destocked rebar in the preceding week due to their concern that 2018-standard rebar will not be allowed to be sold after September 25. The “panic destocking” caused prices to drop sharply, sources told Fastmarkets.
Fastmarkets’ daily price assessment for steel reinforcing bar (rebar) domestic, ex-whs Eastern China hit a 7-year low of 3,240-3,260 yuan ($446-449) per tonne on Thursday July 18 and then stopped declining in the following day.