China’s steel prices have been falling since the beginning of the fourth quarter (Oct-Dec’21), dragged down by the continuous fall in coal prices. Weak real estate and infrastructure investments triggered market expectations of a collapse in steel demand.
Under such circumstances, rebar prices opened flat after the National Day holidays. In a falling market, the main contract fell from RMB 5,870/tonne (t) on 12 Oct’21 to the lowest of RMB 4,026/t ($919/t) on 10 Nov’21, a 31% or nearly RMB 2,000/t ($313/t) drop. In the second half (H2) of November, the decline slowed down. In the short term, supply and demand are expected to improve marginally, but rebar prices may still remain volatile.
Macro indicators down
At a macro level, the main economic indicators continued to decline in October. Fixed asset investment growth continued to slow down while real estate investment declined due to financing constraints while sales dropped. Infrastructure growth was slower. The economy’s overall growth momentum was inadequate.
Exports and imports
The growth rate of exports slowed in October, and the average growth rate of imports over two years declined. The continued recovery in economies overseas led to a decline in exports demand.
Weakening of domestic industrial production has dragged down imports.
Production
On the supply side, according to data from the Bureau of Statistics, domestic crude steel output from Jan-Oct’21 was 877.04 million tonnes (mn t), a marginal drop of 0.7% y-o-y. Crude steel output in October was 71.58 mn t, a y-o-y decrease of 23.3%.
According to the weekly output data of the Steel Union, rebar output has decreased 22% on a weekly basis since November. Due to the limited production and low profit margins of steel mills, the supply side continued to be tight.
Demand
On the demand side, since May this year, downstream indicators, including excavator sales, cement production, and railway and highway fixed asset investments have all shown negative growth. Construction steel transactions have also been significantly lower than in the same period in previous years, and the apparent consumption growth of rebar has begun to turn negative, reflecting that the economic downturn has exerted significant pressure on steel demand.
However, in Q3, the market focused on the long-term strategy of supply-side contraction such as production curbs and power restriction, and did not pay much attention to the weakening demand.
Capital flows to the real estate has been declining. From Jan-Oct’21, real estate development funds increased 8.8%, but the previous value was 11.1%. Among them, domestic loans, self-raised funds and other sources of funds continued to decline. Commercial housing sales growth has been negative for four consecutive months.
Outlook
Annual crude steel output proposed at the beginning of the year was flat. The control target is not only completed ahead of schedule, but it is expected there will be a drop of about 2% for the whole year.
Next year, the steel industry will continue to promote low-carbon development under the dual-carbon target. Crude steel output will be at around 1 billion tonnes. Curbs will continue, and offer some support to prices.
The credit default risk of individual real estate companies exerted downward pressure on real estate investment, which is expected to lead to a sharp decline in demand for construction steel next year.
Leave a Reply