Chinese steel prices are likely to edge down this month as domestic steel demand may weaken further while supply remains abundant, predicted Wang Jianhua, Mysteel’s chief analyst, in his monthly outlook. The incentive policies announced by China’s central government in November to bolster the economy and reinforce consumer confidence seem unlikely to inject any real power to the steel market in the short term, he noted.
During November 1-29, China’s composite steel price under Mysteel’s assessment averaged Yuan 4,060.6/tonne ($568.2/t), down Yuan 107/t from that over October 8-31.
The rapid rise of COVID-19 cases across the country became one of the major drags on steel consumption last month because industrial production and logistics were frequently disrupted by temporary isolation orders issued by local authorities, according to Wang.
“However, taking the overseas pandemic situation as a reference, the number of domestic cases is still far from reaching a peak,” Wang said. “This means Chinese steel demand may face greater pressure in the coming months.”
With temperatures dropping and the days shortening as winter approaches, the domestic steel market has entered the traditional season for low consumption among end-users, and traders are reluctant to build steel inventories, Mysteel’s survey showed. Over November 21-25, the daily trading volume of key construction steel items including rebar, wire rod and bar-in-coil among the 237 Chinese trading houses under Mysteel’s tracking averaged just 138,377 tonnes/day, slumping by 30,985 t/d or 18.3% from the average volume over October 31-November 4.
On the other hand, steel supply may remain at a high level in December as steelmakers will produce actively this month, Wang predicted.
The structural reforms targeting steel supply will likely be less rigorously enforced and the restrictions on domestic crude steel output temporarily eased, so that steelmakers can concentrate on producing and help the national economy to grow, Wang explained. “Besides, the mills need to ensure that their output this year is relatively high, so that in 2023, it won’t be too hard for them to comply with the central government’s directive of keeping the country’s total crude steel production below the prior year’s level,” he added.
Over November 17-23, total output of the five major carbon steel products comprising rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate among the 184 domestic steel mills tracked by Mysteel totalled 9.2 million tonnes, some 226,700 tonnes or 2.5% higher than in the same period in 2021.
Although their active production is likely to drive up prices of raw materials – which in turn may provide some cost support for steel prices – the feeble demand among end-users will negate this support to some extent and keep weighing on steel prices, Wang noted.
As steel production rises while demand wanes, early December will probably see steel inventories among mills and commercial warehouses start to accumulate after these had been gradually drawn down over the past two months or so, according to Wang.
Moreover, participants in the domestic steel market will gradually suspend trade with the approach of the Chinese New Year (CNY) holiday over January 21-27 2023, which means starting from early this month, steel stocks are likely to keep accumulating for around six weeks until just prior to the holiday, Wang noted. However, the stock build-up period before the break will be two weeks longer than the period prior to this year’s CNY, which could result in domestic steel stocks swelling higher than might have been expected, he added.
“Under such circumstances, it is inevitable that steelmakers would cut their offering prices to facilitate sales,” he warned.
“Therefore, despite Beijing’s series of stimulus policies, the pressure prices will face from multiple sources could see them edge down further,” Wang concluded. “Everyone is trying to avoid being hit by the weak fundamentals, but winter is coming, and the chillness will envelop the country’s steel market,” he said.
Written by Anthea Shi, shihui@mysteel.com
Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and SteelMint.
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