- Rising raw material costs increase steelmaking costs
- Steel inventories expected to fall on improved demand
After posting a steady rally in the past month, Chinese steel prices are expected to continue rising in September, driven by elevated costs for steelmaking raw materials and a seasonal improvement in steel fundamentals, Mysteel’s chief analyst Wang Jianhua predicts in his latest monthly outlook.
As of 31 August, China’s composite steel price under Mysteel’s assessment reached Yuan 3,510/tonne ($$522.3/t) including the 13% VAT, higher by a marked 3.1% from a month earlier.
Concerns over coking coal supply shortages have triggered broad-based increases in steelmaking feedstock prices, which in turn have provided firm cost backing for finished steel, Wang noted.
For example, by the end of August, Mysteel’s assessment of China’s composite coking coal price had surged 28% on month to reach the highest level since the end of 2023 at RMB 2,163/t including the 13% VAT, while Mysteel PORTDEX 62% Australian Fines had also increased by 3.7% on month to RMB 708/wmt FOT and including the 13% VAT.
Entering September, prices of these key steelmaking ingredients and fuels are expected to extend their rises, with the upward momentum expected to accelerate in the later half of this month, as steel mills will step up feed replenishment ahead of the Mid-Autumn Festival and National Day holidays, Wang projected.
“Rising raw material prices could lift steelmakers’ cost of production by some RMB 150-250/t or more, especially for integrated mills,” Wang predicts. Given their already squeezed profitability, most steel mills are likely to actively raise their offering prices to pass on the cost pressure downstream, he added.
By the end of last month, only around 32% – some 79 companies – of the 247 blast-furnace (BF) steel producers under Mysteel’s regular tracking could make some profits on selling their steel products, largely unchanged from a month earlier.
The meagre profit margins are expected to press steelmakers to rein in production further, which is likely to ease the pressure of excessive supply on steel prices this month, according to Wang.
During the week over 21-27 August, the total hot metal production by the 247 BF mills Mysteel tracks had fallen for two straight weeks to 2.36 million tonnes/day (mnt), lower by 0.5% from the previous week.
On the other hand, September marks the onset of the traditional peak season for steel consumption in China. With cooling temperatures fostering a recovery in construction activity, and downstream sectors such as automotive and home appliances raising production, steel demand is set to grow overall, Wang noted.
Late last month, China’s central government signaled through state media that it would step up the implementation of macroeconomic policies in the coming months, including but not limited to introducing more accommodative monetary measures, accelerating fiscal spending and bond fund utilization, and speeding up project approvals and construction starts, which is also expected to give a boost to steel consumption this month, Wang believes.
With supply retreating and demand recovering, China’s steel inventories will likely drop further during September, Wang predicts.
By the end of August, the total inventories of the five major carbon steel products – rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate – held by steelmakers and trading houses across the 35 Chinese cities under Mysteel’s tracking had fallen for three straight weeks to 15.9 mnt, though this amount was still 8.4% higher than the year-ago level, according to Mysteel’s tracking.
Note: This article is published as part of a content sharing agreement between Mysteel Global and BigMint
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