FOCUS: Healthy margins override costs of new China rebar standards

Date: Oct 25, 2018

The production cost of rebar will increase from November 1 with the implementation of China’s revised rebar standard GB-T 1499.2-2018, but spot prices are not expected to rise accordingly.

Production cost rises
The revised standards prohibits steel mills from using a water-quenching process in rebar production to meet the new yield and strength requirements.”This kind of rebar rusts easily and is not suitable for welding. It also affects building safety,” an industry analyst in Shanghai said.

In order to produce rebar that meets the new standards, steel mills need to raise the content of alloys such as vanadium.

“The [required] amount of vanadium to be added is 0.03-0.05% for HRB400 and 0.05-0.08% for HRB500,” an official at the China Iron & Steel Research Institute (CISRI) said in August last year.

“Production costs will increase by about 200 yuan ($28.80) per tonne compared with the past,” a source at a mill in north China said.

One industry analyst working for a vanadium producer expects rebar production costs to increase by 320 yuan per tonne, based on the current vanadium price.

The price for ferro-vanadium, 78% min were at $130-140 per kg, fob China, on October 18, up $17-23 per kg from $113-117 per kg a week earlier, according to Fastmarkets MB’s price assessment.

“The price gains in vanadium [means] rebar costs will also increase,” a source at a second mill in north China said.

Rebar prices could remain stable

The higher production costs may not push rebar spot prices up in the same way that some market participants expected earlier this year, market sources said.

This is because the current, high profit margins will offset the increases in production costs, the source at the first mill said.

At the moment, gross profit is around 1,000 yuan per tonne for rebar producers based on the current spot market prices, industry analysts told Fastmarkets.

Domestic rebar prices in east China were assessed at 4,620-4,650 yuan per tonne on Wednesday October 24, unchanged from a day earlier, according to Fastmarkets MB’s assessment.

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