Baoshan Iron & Steel Co Ltd (Baosteel), China’s top listed steel manufacturer, has reportedly rolled over its carbon flat steel prices for Oct’21 delivery. This is the company’s fourth monthly roll-over in a row.
Prior to this, the steel major had rolled over prices in a bid to let the market absorb the previous hikes.
Reasons for Baosteel’s rollover plan
1. Production trimming: Chinese authorities have been aiming to cut their steel production in sync with those achieved in CY’20, in order to reduce their carbon emissions and become carbon neutral by 2030.
Recently, as per media sources, more than 20 mills are heard to be undertaking scheduled maintenance works at their mills in Sept’21, thus, creating demand-supply imbalance.
Notably, steel inventories at the end of Aug’21 from major mills have fallen by 2.8% to 13.42 million tonnes (mn t), China Iron and Steel Association (CISA) reveals.
2. Poor downstream demand: Downstream industrial demand took a hit due to the seasonal disruption in the construction segment along with supply constraints faced by the auto sector. Notably, China’s automobile sector posted a decline in sales by 3.5% m-o-m to 1.79 million tonnes (mn t) units in Aug’21, as per latest data released by China Automobile Manufacturers Association (CAAM). Sales volumes declined by 17.8% on a yearly basis.
3. Price volatility still high in domestic market: Domestic steel prices witnessed an increase by about RMB 100/t to RMB 5,850-5,920/t (Eastern China) on 10 Sep’21 from RMB 5,760-5,820/t (Eastern China) on 10 Aug’21 over the recent announcement regarding further tightening of production curbs. However, the prices had dipped to RMB 5,660-5,670/t (Eastern China) at the beginning of September weighed down by seasonal disruptions, and other trade-related barriers in both overseas and domestic markets.
Outlook
Currently, there are still various factors impacting the utilisable production capacities of the steel manufacturers and in turn leading to volatility in market prices. The trimming of production capacity and adjustments in production volumes shall continue with a major focus on the net zero carbon emission target by 2030 and near-term target of clear weather conditions around the Winter Olympics and Paralympics scheduled for Feb-Mar’22.
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