The Chinese rebar market experienced a panic sell-off on Thursday as traders rushed to offload existing stocks ahead of the implementation of a new national standard for rebar on 25 September 2024.

On 25 June, the State Administration for Market Regulation approved two new mandatory national standards for hot-rolled rebar, GB1499.1-2024 and GB1499.2-2024. These new standards impose stricter requirements on production accuracy, fatigue performance, smelting methods, and testing methods.

Kallanish has learned from multiple market sources that the new standards will raise production costs by about CNY 20/tonne ($2.75/t). However, this impact is relatively minor compared to the last standard revision in 2018, which led to cost increases of several hundred CNY due to alloy requirements.

The upcoming implementation of the new standard has already affected the spot market, with stockists under pressure to sell off existing inventories. Regulations stipulate that once the new standards take effect, rebar produced under the old standards will no longer be permitted sale. This forces stockists to clear their existing stocks within a three-month window starting from the end of June.

Market contacts report significant shipping pressure in the spot market, particularly in Hangzhou and Changzhou warehouses in eastern China, where inventory backlogs are severe. Due to sluggish off-season trading and the impending new standards, some warehouses have suspended the transfer of warehouse receipts between traders to focus on physical shipments.

As of the afternoon of 18 July, 20mm HRB400 rebar in the Shanghai spot market was trading at CNY 3,250-3,280/t, down CNY 45/t from last Friday. Data from the Shanghai Futures Exchange showed that settlement prices for August and September 2024 rebar futures contracts fell by CNY 51/t and CNY 52/t respectively on Thursday.

Rebar prices are expected to remain weak in the short term until stockists make significant progress in clearing out old standard rebar. To alleviate inventory pressure, Chinese rebar producers, including Nangang and Yonggang, have announced additional maintenance and production adjustments. The latest survey data indicates that about 20% of steel mills have started producing rebar that meets the new national standards, with the remaining mills still planning to transition their production. Most steel mills are expected to start supplying new standard products by early August. 

Market traders anticipate that after this concentrated destocking, rebar inventory pressure will significantly reduce in the fourth quarter, improving market expectations.