Posted on 01 Sep 2022
After stabilizing amid tentative optimism in August, Chinese steel prices are likely to weaken again in September, Wang Jianhua, Mysteel's chief analyst, predicted in his monthly outlook, noting that increasing supply will become the major pressure.
As spot and futures prices of steel rebounded in August, some 62% of the 247 steelmakers in China surveyed by Mysteel said they had made money during the month, which encouraged mills across the country to actively resume production, according to Wang.
Over August 19-25, daily output among the 247 sampled steel mills reached around 2.3 million tonnes/day, marking for a sharp increase of 158,200 t/d from the final week of July. It was also 6,400 t/d higher than the same period last year.
The survey also found that these steelmakers are planning to resume production on another 20 blast furnaces next month, which will cause total hot metal output in September to increase by 4.5-5 million tonnes from August, according to Mysteel's assessment.
Wang warned that the continuous recovery of steel mills' production is likely to cause a surplus of supply of steel, which will place greater pressure on the "already fragile market". Yet he also noted that steel mills will not readily forego ramping up production for now.
"As long as profit margins remain, steelmakers would like to maintain robust production, especially in the peak season for steel demand in September," he explained. Consequently, some rise in steel supply seems inevitable.
Meanwhile, demand for steel was lacklustre in August, and shows little sign of recovering next month, Wang pointed out, although steel for use in infrastructure construction and manufacturing is expected to rise slightly with the summer's heatwave diminishing.
For example, the total space floor of residential properties sold in the 30 cities in China under Mysteel's monitoring dropped 8% on month over August 1-25 and plunged by 21% on year to 9.4 million square meters, which suggests that steel demand for real estate development will stay weak.
On the macro front, the People's Bank of China had held a meeting with domestic financial institutions on August 22 to discuss increasing loan issuance, while the State Council also announced on August 24 it was strengthening the policy package for stabilizing the economy by lifting the issuance of special bonds, as reported.
"It indicates that the policies implemented previously are not proving strong enough to stimulate the economy, while at the same time, for the new measures to take effect immediately is hard," Wang said, suggesting that the reinforcement of macroeconomic policies is barely conducive to driving up steel consumption.
In this scenario, the total inventories of major steel products such as rebar, wire, coil, and plate among steel mills and retail warehouses are expected to accumulate slightly in September, which will keep weighing on steel prices, he predicted.
"Under the pressure of weak fundamentals and struggling macroeconomy, China's steel prices may lose ground in September," Wang concluded, stressing again that prices stand little chance of recovering unless steelmakers can temper their resumption of production.
Source:Mysteel Global
