Posted on 02 Nov 2022
Chinese steel prices are likely to drop further during November under the pressure of a slowing global economy and the mismatch domestically between steel supply and demand, predicted Wang Jianhua, Mysteel's chief analyst, in this monthly outlook. Steel prices had climbed briefly early last month, before falling throughout the rest of the month, Mysteel's data showed.
As of October 31, China's national composite steel price under Mysteel's assessment had dropped by Yuan 252.5/tonne ($34.5/t) from September 30 to hit Yuan 3,994.1/t, with the price falling below Yuan 4,000/t for the first time after standing above this threshold for two years.
The central government's guidance for the strict containment of COVID-19 outbreaks has seriously dampened market sentiment, Wang noted, adding that the pessimism is even intensifying now because of the robust steel output domestically and high inflation overseas.
"Neither macroeconomics nor fundamentals show any sign of recovery in November, so steel prices will continue to slide overall, though occasionally the prices may bottom," he said.
According to Wang, the United States – a major pillar of the global economy – is showing fatigue in its economic growth, with the latest indicators such as gross domestic product growth and purchasing manager indices being generally lower than expected.
"The economic downturn overseas will inevitably limit Chinese steel exports – whether directly in finished steel or indirectly in steel items – which in turn encumbers China's economic recovery," he explained.
Meanwhile, the domestic economy is still under the heavy burden of the COVID-19 pandemic, Wang noted.
"Domestic governments are committing vast manpower and material resources to COVID containment, which has impacted the production of enterprises as well as the activities of citizens," he pointed out.
Under these circumstances, China's national investment, consumption, exports and imports are unlikely to strengthen in November, Wang predicted. "Even if there are new incentive policies unveiled, the market will probably remain indifferent," he added.
Regarding fundamentals, Chinese steel production remained abundant last month, Mysteel assessed. The daily output of five major carbon steel products including rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate among the 184 domestic steel mills under Mysteel's survey averaged 1.38 million tonnes/day over October 1-31, largely stable from that over September 1-30.
As for November, steel output may stay healthy, Wang believed. He argued that some blast furnace mills intend to ramp up production to accelerate the drawdown of the raw materials they had previously purchased at higher prices, so that they can start using low-cost raw materials as soon as possible.
"In the regions where demand is relatively strong, local steel mills with enough cash may even produce at full capacity," he said.
However, Mysteel's research shows that steel demand among Chinese end-users will weaken in November as new orders from the structural steel sector and machinery manufacturing industry are falling, while steel consumption among general contractors will decline as well with the approach of cold weather in northern regions.
Consequently, steel supply will remain in surplus this month, which will continue to depress market conditions and weigh on steel prices, Wang commented.
While steel prices lost ground last month, prices of some raw materials including coking coal and coke had been standing largely stable, causing profit margins among steelmakers to keep shrinking, according to Mysteel survey.
Late last month, steel mills had begun pressing the independent merchant coke producers to accept a cut of Yuan 100/t in their purchase prices of coke to shave their production costs, though the coke makers have yet to concede, Mysteel Global learned.
"This indicates that scope exists for prices of those raw materials to move down, and if the price cuts are realized, the support for steel prices will weaken further," Wang noted.
Source:Mysteel Global
