Posted on 02 Apr 2021
Aside from occasional downward corrections, Chinese steel prices are likely to fluctuate higher this month overall, given the healthy fundamentals, as apparent steel consumption in April is seen moving up by some 10% on year, Wang Jianhua, Mysteel’s chief analyst, maintained in his monthly market outlook. But he warns that uncertainties exist regarding Chinese steel exports and imports this month.
Domestic steel demand will experience large growth in April as economic activity and work on construction projects would significantly increase, Wang predicted, noting that only three months remain until numerous festivities begin nationwide to mark the 100th anniversary of the founding of the Communist Party of China. Many indicators also suggest this will be a strong month for steel, he said.
Investment in transport infrastructure construction in China will jump by 16.4% on year to nearly Yuan 3.1 trillion ($472.1 billion) for 2021, Wang said, referring to Mysteel survey findings. And data from China’s Bureau of Statistics (NBS) showed that the index for new construction-sector orders rose by 5.6 basis points on month to 59 for March, which indicated that momentum is growing for further rises in building-related activity.
“Lately, the demand for construction steel has not been as robust as expected, chiefly because the rapid surge in prices cooled procurement among steel users,” he said. As speculative demand has also softened, any trading activity is mostly among those with actual need. “Nationwide rebar stocks may decline by 1 million tonnes on-week (while) apparent consumption is expected to reach 4.5 million tonnes or even higher per week,” he predicted.
Steel demand from the manufacturing sector might increase modestly in April as the home appliance, shipbuilding, machinery and hardware sectors will see further recoveries in business, Wang stated, citing NBS data showing that the spread of new orders and the steel stocks index for the manufacturing industry had rebounded to 6.9 for March. Among major steel-consuming sectors, the outlook for the automobile industry is perhaps the most uncertain as output is still affected by the shortage of semi-conductors.
Steel supply is also likely to increase this month given the mills’ expanding profits, but the growth in volume should still be outpaced by the rise in demand, which will lead to declines in steel stocks, Wang noted. He predicts that domestic finished steel stocks will drop by at least 8 million tonnes in April.
On the production side, Wang considers that the operational restrictions imposed on steelmakers in Tangshan in North China’s Hebei province will slash molten iron production by around 3 million tonnes this month, though steel output will rise nonetheless this month, he predicts. Mysteel data shows that steel output in March actually rose compared with January (the February result being discounted because of Chinese New Year). However, Wang cautions that if local authorities in Wu’an, also in Hebei, decide to curb production there in April, steel production overall might decline.
The rises in production will mainly come from blast furnace-based steelmakers rather than electric arc furnace-based mills, as the rising space for steel production for the latter is very limited, Wang points out. Mysteel survey data shows that capacity utilization among the 71 sampled EAF mills nationwide hit 70.55% by end March while during all of 2020, the best run-rate the EAF makers achieved was 61.35%.
The spread between new orders index and stocks index in the steel sector increased to 13.9 in March, close to a historical high and presaging further expansion for the industry, according to Wang.
As for raw material costs, the steady reduction in domestic coke prices since late February has wiped out nearly all of the price increases the coke makers achieved since last August. Consequently, prices might stabilize in April, Wang suggests. On the other hand, iron ore prices would likely reverse up – driven by the strong finished steel prices – but the room for rises is limited.
Wang also noted that while the effect on the industry of the rumoured reduction in the export tax rebate remains unclear, the future trend should be encouraging imports while reducing exports.
Source:Mysteel Global
