Chinese steel prices may slip further in January from this month with the recovery of steel supply and the further decline in demand, Wang Jianhua, Mysteel’s chief analyst, projected in his near-term outlook published on Thursday.
Over December 24-January 31, Mysteel’s investigation across 247 steel mills indicated that 49 blast furnaces (BF) will be resuming operations, while only ten BFs will be halted for maintenance. Consequently, daily molten iron output will return to at least 2.07 million tonnes/day in January, from the average 2 million t/d in December, Mysteel estimated.
The decent profits that mills are enjoying may also prompt more of them to resume operation, on top of those whose starts were announced, according to Wang.
On December 24, the average profits that blast furnace-based producers were earning on sales of their rebar and hot-rolled coil were Yuan 579/tonne ($90.9/t) and Yuan 419/t respectively, Mysteel calculated based on prevailing raw materials and steel prices.
“Such high profits will undoubtedly boost mills’ production activity, especially for those steelmakers located in regions that are likely to be unaffected by production restrictions imposed when China hosts the Winter Olympic Games starting in early February,” Wang said.
Steel producers in and near North China’s Beijing-Tianjin-Hebei region are still required to observe 30% output cuts over January-March as part of measures to reduce atmospheric pollution during the ‘winter heating season” and to help to guarantee blue skies for Winter Olympics events, being held in Beijing and in several cities in Hebei starting February 4, as reported.
Elsewhere, steel mills that had complied with the central government’s order that crude steel output during 2021 fall below the 2020 total, will also have a “strong impetus” to bring back production, Wang suggested.
Based on the arguments above, Wang estimated that daily molten iron output will probably reach 2.15 million t/d next month.
Unlike BF steelmakers, Chinese electric arc furnace (EAF)-based steelmakers are suffering from slumping margins and even some losses and may face a tougher time making money in January should steel prices decline further. This may prompt some makers to suspend production, which in turn would reduce finished steel output, Wang also pointed out. But any cutback among the mini-mills is hardly likely to offset any increase in output from BF makers, as these contribute around 90% of China’s steel production, Mysteel Global notes.
On the other hand, shrinking steel demand will further reduce support for current steel prices, according to the outlook.
China’s daily trading for steel in construction use, comprising rebar, wire rod and bar-in-coil, is expected to plummet to just 65,000 tonnes/day by mid-January, from an average of around 155,000 t/d in the middle and late December, as temperatures continue to drop in the winter and building contractors begin allowing workers to begin their long treks to distant hometowns for Chinese New Year. CNY officially falls on February 1 next year but the annual exodus will begin at least a week prior to this, Mysteel Global notes.
The daily trading volume will also be lower than the average of 75,000 t/d witnessed in the last two weeks before CNY holiday this year, because of restrictive measures taken to contain sporadic COVID-19 cases in China and lower demand from the property sector due to Beijing’s tightened controls.
“As we enter the last month before CNY, steel demand will decline steadily, and the current shortages of certain grades of steel products will ease,” Wang predicted.
“To some steel traders, they may feel safer holding capital in hand than holding the (steel) products, so they are likely to lower their prices to promote sales,” he suggested.
Increasing supply and shrinking demand will see domestic steel stocks rebound starting early January, and the inventories-to-sales ratio will likely to be higher on year, imposing downward pressure on prices.
As of December 24, stocks of five major steel products at the 184 steel mills and commercial warehouses in 35 cities surveyed by Mysteel on a weekly basis totaled 12.9 million tonnes, still down 715,900 tonnes on year.
Steel raw materials are likely to also undergo some downward corrections next month, according to Wang.
“Imported iron ore prices rose to over $120/dmt (December 20-27) – mainly on speculation – which was an unreasonably high level, considering the fundamentals of high inventories but low demand,” he noted.
The possibility exists for coal and coke prices to increase slightly for a short period of time in January, propelled up by mills’ replenishment, but after that, they will face downward pressure too, Wang predicted.
Written by Olivia Zhang, zhangwd@mysteel.com
This article has been published under the article exchange agreement between Mysteel Global and SteelMint.
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