- Steel indices drop over 23-27 May
- Production cuts to ease short-term inventory pressure
- But market confidence alive despite ‘off-season’ shadow
- Govt on front-foot to revive economy with new projects
Morning Brief: In the week 23-27 May, 2022 (22nd week of the calendar), the Lange national steel index touched RMB 5,081/t, a dip of 1.6% w-o-w and a drop of 6.9% y-o-y. In this period the Lange Steel long products index was at RMB 4,849/t, inching down 1.7% w-o-w and dropping 5% y-o-y. The Lange steel sheet index was at RMB 5,169/t, down 1.4% w-o-w and 8.6% y-o-y while the steel pipe index touched RMB 5,732/t, down both 1.7% w-o-w and 7.4% y-o-y.
The 22nd week of the year saw price changes in 17 categories and 43 specifications (varieties) of steel raw materials and finished products in the country. For instance, prices of coke fell by RMB 200/t, scrap fell steadily by RMB 40/t, and billets, by RMB 60/t.
Demand-supply dynamics
From the perspective of supply, due to volatile coke prices and continuous decline in finished prices, losses of mills are more evident, and production cuts are increasing, which will alleviate the inventory pressure for the short-term.
For the domestic steel market, strong expectation of steady growth still exists, but it is gradually shifting to a traditional off-season period.
Where demand is concerned, although resumption of work and production in various places is in progress, there are weather issues which will impact consumption. The northern market will experience high temperatures while the southern market will face the rainy season. Thus, depletion of social inventory is slow, and demand in the spot market is low.
In the short term, despite weak off-season demand, market confidence has recovered, driven by policy measures to stabilize growth and control Covid.
Policy measures to stabilize economy increasing
At present, due to multiple factors, the downward pressure on China’s domestic economy has increased, and thus measures to stabilize the same are also increasing. On 23 May 23, the State Council held a meeting to further deploy a package of measures. Some new water conservancy projects have been launched, especially large-scale irrigation ones, along with transportation etc, as well as renovation of existing ones which will guide banks to provide large-scale long-term loans, and support the issuance of RMB 300 billion of railway construction bonds.
On 25 May, the General Office of the State Council announced that a combination of revitalizing existing infrastructure and new investments are important for reviving the economy. Expansion of investment, and reduction of government and corporate debt are of great significance.
On 26 May, the Ministry of Finance also issued a subsidy budget of RMB 69.91 billion for urban affordable housing projects in 2022. Such major projects and their financing channels will boost the current poor housing situation.
Industry news
The PMI index of the steel end-user industry in May was 47.2%, down 3.4 percentage points from the previous month.
In mid-May, the daily crude steel output of key steel enterprises was 2.2991 million tonnes (mnt), a marginal dip of 0.27% m-o-m.
In mid-May, the steel inventory of key steel enterprises was 19.9774 mnt, a m-o-m increase of 6.55%.
From January to April, the ferrous metal smelting and rolling processing industry realized a total profit of RMB 65.97 billion, a y-o-y decrease of 55.7%.
Global crude steel production in April was 162.7 mnt, down 5.1% y-o-y.
Outlook
As per weekly estimates of Lange Steel, the domestic steel market will stabilize from 30 May onwards or there may be a short-term rebound.
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