NDRC: China’s steel market to weaken further in February

• Steel prices weaken amid poor demand outlook
• Inventory buildup signals deepening market pessimism

Mysteel Global: China’s steel market is expected to continue weakening this month, with thin trading and prices trending softer due to the absence of positive catalysts. This is according to the most recent survey of the steel sector’s health conducted by the National Development and Reform Commission (NDRC), which covered major wholesale steel markets in South China, Shanghai and Tianjin.

The survey showed downbeat sentiment across key indices. The Sales Price Expectation Index for China’s wholesale steel market had edged down 0.08 percentage points from January to 36.86%, indicating subdued market sentiment. The Purchase Price Expectation Index, despite an increase of 3.74 percentage points from last month, remained in contraction territory at 45.18%.

Market pessimism was most pronounced in demand and inventory indicators, according to the survey results. The Sales Volume Expectation Index had plunged 9.7 percentage points on month to just 16.42%, while the Inventory Expectation Index jumped 9.87 percentage points on month to 75.91%, reflecting expectations for a sharp slowdown in end-user demand and an accelerated buildup of stockpiles, the NDRC notes.

Rising costs are set to squeeze sellers’ margins further. The Sales Cost Expectation Index surged 14.36 percentage points from January to 58.76%. In response, the Sales Profit Margin Expectation Index dropped to 27.37% for this month, lower by 8.82 percentage points from the prior month.

With both supply and demand staying sluggish, steel prices are likely to remain weak throughout February, the NDRC suggests.

The extended Chinese New Year holiday beginning February 15 is exacerbating the seasonal weakness, bringing construction activity to a near standstill and accelerating the contraction in steel demand. At the same time, cost support for steel is fading, as steel mills have largely completed their pre-holiday restocking of key feedstocks such as iron ore and coking coal, a shift that has eased the supply tightness and softened raw material prices, it explained.

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