Posted on 10 Oct 2022
Chinese steel prices are likely to rebound in October with market fundamentals improving and macroeconomy support policies coming into force, predicted Wang Jianhua, Mysteel's chief analyst, in his monthly outlook. But pessimism still haunts the market, he admitted.
As of September 26, China's national composite steel price under Mysteel's assessment had dropped by Yuan 13.8/tonne ($1.9/t) from August 31 to reach Yuan 4,209.1/t, with the average price during September 1-26 losing Yuan 104/t on month.
Market participants can probably expect prices to keep falling in coming months, Wang noted. "Inevitably, market sentiment will be depressed by persistent COVID-19 containment policies, the approach of the traditional 'heating season' in northern regions of China (when steel production is often cut) and fears about a global economic recession," he explained.
Nonetheless, he suggested that there is no need to be so pessimistic because domestic steel demand showed signs of recovery in September.
For example, daily trading volume of construction steel comprising rebar, wire rod and bar-in-coil among the 237 Chinese trading houses under Mysteel's tracking averaged 182,288 tonnes/day over September 1-29, jumping by 34,857 t/d or 23.6% from the average daily trading volume during August. On September 27 alone, the volume even hit a one-year high of 276,754 tonnes.
"Actual consumption over the past two months has soundly disproven the claims of market 'bears' that Chinese steel demand has plummeted by 30-50% during the past year," Wang noted. Market participants should regain their confidence in steel prices, he stressed.
As for October, traditionally a month for high steel consumption in China, there is room for steel demand to grow further, he added, as most construction companies will ramp up the pace of work on building projects while the cool and mild weather lasts. Steel end-users will replenish input materials since their current steel stocks are quite low.
Meanwhile, the liquidity of financial assets in China keeps improving with the growth in national tax revenue, and the national investment in infrastructure and manufacturing industries has increased in recent months, both of which provide solid support for steel prices.
On the other hand, domestic steel supply is likely to decline overall in coming months, according to Mysteel's assessment, and this will also give a boost to steel prices.
Among the 247 domestic steel mills tracked by Mysteel, only around half enjoyed some profit margins on their finished steel in September, and many were teetering on the brink of losing money – a situation had already prompted steelmakers to refrain from ramping up output, Wang said.
Given the steel mills' voluntary production cuts and their mission to keep this year's total crude steel output lower than that of last year, Mysteel estimates China's crude steel output will edge up slightly to 86.5 million tonnes in October and then keep below 80.4 million tonnes in November and December, close to this year's lowest levels.
In addition to the improving balance between supply and demand, stronger raw material prices may support steel prices as well, Wang added. The wide-ranging production halts among coal and iron ore mines after frequent accidents are likely to lead to short availability of those commodities amid steelmakers' replenishment demand.
"A key opportunity has emerged for steel mills to guide the rise of steel prices by cutting output reasonably," Wang commented. "After sliding for nearly six successive months, domestic steel prices now stand a chance to experience a rebound – thanks to stronger fundamentals and supportive macro policies," he observed. "And if the government reinforces its fiscal support policies and if domestic lockdowns for COVID containment can be avoided, prices will gain greater momentum," he concluded.
Source:Mysteel Global
