Posted on 01 Jun 2022
China's steel market is expected to regain momentum in June, even though it remains under downward pressure due to pent-up demand from end-users, especially those in the property sector, as COVID containment measures remain in place, suggests Wang Jianhua, Mysteel's chief analyst.
In May, Chinese prices of major steel products and key steelmaking inputs all declined, pressed down by bearish market sentiment amid the pandemic restrictions, Wang observed in his monthly market outlook on May 30, with those of rebar and billet, two of the country's most popular steel items, touching 4-month lows.
In his new outlook report, Wang cited several reasons for a possible recovery in China's steel market in the near term, among them being a better macro-economic environment, improved demand for steel, and limited rise in steel supply next month.
The State Council – China's cabinet – rolled out a comprehensive package of policy measures on May 23 to further support the national economy, ensuring that economic growth resumes its normal trajectory and that the economy keeps expanding within a reasonable range, as reported.
The 33 measures newly introduced by the State Council cover six aspects of the country's economic fundamentals, ranging from implementing fiscal and monetary policies to help stabilize the economy and boosting domestic consumption and investment, to stabilizing industrial and supply chains and safeguarding national energy security.
"More government stimulus policies are expected to be unveiled in June," Wang observed. "And with such measures beginning to take effect, there'll be a definite improvement in China's economic environment, and domestic steel prices may see a major upward correction next month," he added.
Wang also believed that the planned lifting on June 1 of a two-month-long COVID-induced lockdown in Shanghai – the largest steel-trading hub in East China – should give a major fillip to domestic steel demand.
"Judging from the various data currently available from key steel-consuming sectors (including manufacturing industry, automobile assembly and construction), domestic steel demand may recover at a steady pace in June, when more end-users will come to fully resume their operations with the further relaxation of COVID restrictions across the country," Wang noted.
On the supply front, near-term production among the country's steelmakers will be constrained as mills respond to the meagre or even negative profit margins they're currently earning from sales, Wang pointed out.
According to Mysteel's survey among 247 blast-furnace mills and 75 independent electric-arc-furnace (EAF) mills across China, less than half of the sampled BF mills had managed to enjoy some marginal profits as of May 26. Among the mini-mills, more than 73% of the surveyed EAF makers had suffered losses when producing.
Besides, Chinese steel prices may also gain some support from the relatively high costs of key steelmaking raw materials including iron ore and metallurgical coke, in Wang's opinion.
"So there should be little doubt that Chinese steel prices will rebound this time, after persisting at their recent lows for a while. And the steel price recovery foreseen may also be a prelude to the strengthening of the country's steel market towards the second half of this year," Wang concluded.
Source:Mysteel Global
