Growing fears across China that demand for steel and raw materials is stagnating have seen prices of related commodities tumble over the past several days, and market sources on Wednesday warned that the near-future outlook for demand remains bleak.
On Tuesday, the most-traded rebar contract on the Shanghai Futures Exchange for October delivery, for example, dropped for the third day, closing the daytime session at Yuan 3,910/tonne ($582/t), down by another Yuan 174/t or 4.3% from the settlement price of July 7and refreshing the seven-month low.
On the same day, the most-traded iron ore contract for September delivery on the Dalian Commodity Exchange (DCE) plummeted too, closing the daytime session at Yuan 707/dmt, down by Yuan 37/dmt or 5% from the settlement price on Monday. Meanwhile, the DCE’s coke and coking coal futures contracts experienced similar falls.
“Pessimism is pervading the market, that’s for sure,” a Zhejiang-based analyst with a trading company commented. “The lackluster recovery of domestic steel demand – this is the focal point of market trends for now – is leading to weak steel prices and negative steel margins, and in turn, negatively impacting raw materials prices,” he explained.
According to Mysteel’s survey, on average during June, the 91 sampled blast-furnace (BF) steelmakers were losing Yuan 317/tonne ($47.1/t) on their rebar sales, much worse than their average Yuan 249/t loss for May.
According to the analyst, several factors together are dampening domestic steel demand, including the hot and rainy summer weather, the unpromising real estate market data, and the resurgence of COVID-19 cases in many areas.
Mysteel’s data also showed that the daily trading volume of rebar, wire rod, and bar-in-coil among the 237 Chinese traders Mysteel monitors had declined to an average of 146,134 tonnes/day over July 1-12, lower than the average of 155,961 t/d in June, and down 27% compared to the volume recorded in the same period in 2021.
“Steelmakers still need to trim their production, or it might be hard for them to stabilize steel prices. They also need to press down raw materials costs if they want to see steel margins recover. The cutbacks the mills are making to production these days might not be enough to stabilize the market,” the analyst also remarked.
Currently, many electric-arc furnace makers have suspended production due to difficulties sourcing ferrous scrap and the hits they’re suffering on their margins, as reported. More BF steel mills are also electing to hold maintenance stoppages to reduce output.
Mysteel’s latest survey among 85 EAF mills nationwide showed that as of July 7, their capacity utilization rate had dropped for the ninth week, falling by another 3.92 percentage points on week to 31.67% – a five-month low.
Meanwhile, average daily output of hot metal among the 247 steel mills Mysteel monitors nationwide had declined for the third week by another 51,200 t/d on week to 2.31 million t/d on average over July 1-7. The volume was still 12,200 t/d higher on year, however.
Source: Mysteel
Other market sources noted that it’s not only China struggling with weakening steel demand and prices.
“The countries of South and Southeast Asia are now in the middle of their rainy season when steel demand always weakens, so prices there are also soft,” a Shanghai-based steel trader mentioned.
Moreover, global commodity markets have undergone a sharp correction recently as market participants brace for a possible recession, a Shanghai-based analyst also noted. “The domestic ferrous market could not avoid being rippled by such developments,” he said.
Written by Victoria Zou, zyongjia@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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