Representatives of the Chinese steel industry in Beijing for this week’s ongoing ‘Two Sessions’ political meetings expect steel demand this year to stay strong, thanks to stimulus measures unveiled by the government to bolster the economy amid the battle against the COVID-19 pandemic.
Steel demand steady, but increased supply and higher iron ore prices weigh on market
“In the second half of this year, assuming that the spread of the virus is well controlled, the (steel) industry overall will remain steady and will perform a bit better than in H1,” said Li Lijian, the chairman of Anyang Iron and Steel Group Co based in Central China’s Henan province.
Li pointed out that the country had been enhancing its efforts in fighting the COVID-19 impact by launching macro-economic policies that would help boost steel consumption. However, he also warned that the steel industry is entering uncharted territory of “high production, strong demand, high stocks”, implying that business circumstances could change rapidly.
In what appeared as a warning to the industry, Li noted while domestic steel demand may be stable, shrinking overseas demand due to the COVID-19 virus will continue weighing on China’s steel exports.
Other delegates also cautioned about the consequences of swelling inventories. “Steelmakers have already got through the toughest period in February, when stocks hit a historical high at over 40 MnT,” according to Xia Wenyong, chairman of Xinyu Iron and Steel Co in Southeast China. “Steel stocks have rapidly declined starting March, but are still staying high,” Xia observed to media on the meetings’ sidelines, noting that high stocks could be the new normal for this year.
Total steel stocks held by traders in 132 cities surveyed by Mysteel and held by 184 mills in mid-March hit a historical high at 38.9 MnT, as reported.
Source: Mysteel
Construction steel sales including those of rebar have benefited from the resumption of work on major projects across the country, Xia remarked, saying the accelerated pace of construction on those projects will boost steel demand. During January-March, Xinyu Steel had received engineering construction steel orders totalling 650,000 MT, exceeding the total for all of 2019, he noted.
Besides, both mill executives believed that iron ore prices would be the unstable factor for the steel sector this year. The rise in prices must hurt industry profits, and the virus’s impact on iron ore supplying countries might result in price fluctuations, they noted.
“(Domestic) steel prices declined on year over January-April while costs for purchasing iron ore and enhancing environmental protection increased,” Shiheng Special Steel Group chairman Zhang Wuzong said, adding that his company’s profits would decline 30% on year in 2020.
Over this year’s first four months China’s national price of HRB 400 20mm dia rebar dropped 8.8% on year to Yuan 3,691/MT (USD 516/MT) including the 13% VAT on average while the SEADEX 62% Fe Australian Fines price averaged USD 87.7/wmt FOT Qingdao over the same period, some 2.6% higher on year, Mysteel’s data showed.
Steel capacity to be restrained for long term, industry concentration to be enhanced
Shiheng Special Steel’s Zhang expected that domestic production of crude steel products would decline by some 40% at least to some 600 MnT within five-ten years. This compares with 996 MnT in 2019, Mysteel Global notes.
“China’s steel production is comparatively high, accounting for a half of the total across the world, but this will not remain the case for long,” Zhang stated. “Investments into domestic infrastructure will decline in the future, the property market is also reaching a peak, and international trade is feeling the impact of the virus. All those are challenges to steelmakers,” he added.
Besides, the fruits of supply-side reform should be guarded, Li Lijian from Anyang Steel said. “The ’numbers games’ being played during capacity replacement projects are biting into the achievements made in cutting surplus capacity,” he warned.
China is collecting opinions from interested parties on how to further standardize regulations relating to “old-for-new” domestic steel capacity projects so as to control capacity and avoid capacity expansions, as Mysteel reported.
Mergers between and among steelmakers is crucial for the smooth development of the steel industry, delegates said. China Baowu Steel Group Co (Baowu) for example, China’s top steel producer, has been working determinedly to expand capacity by integrating other steelmakers including Magang (Group) Holding and Chongqing Iron & Steel Group, as reported.
Leave a Reply