Posted on 05 Jan 2023
During 2022, China's steel industry was not only under pressure from shrinking demand, rising supply, and weakening market sentiment, but also faced certain negative factors including the conflict between Russia and Ukraine, the massive interest rate hikes of the U.S. Federal Reserve, and COVID-induced disruptions, observed Mysteel's chief analyst Wang Jianhua.
As for 2023, the Chinese steel market may recover from a bottom, though the rebound in domestic steel prices would be rather limited, mainly due to the lingering downward pressure from market fundamentals and the macroeconomic environment, Wang predicted in his latest monthly outlook.
And such weakness will be even more evident in the domestic steel market this month because the Chinese New Year (CNY) holiday over January 21-27 will result in fewer trading days.
"Demand for construction steel (in particular) will soon fade significantly, and the gradual accumulation of inventories of major steel products is also emerging, both of which will weigh down the domestic steel market in the near term," Wang noted.
For example, as of December 29, total stocks of the five major carbon steel items held by 184 Chinese steel mills and trading warehouses in 35 cities nationwide under Mysteel's tracking had swelled by 430,000 tonnes or 2.3% on year to reach 13.3 million tonnes, according to the latest survey. The five products comprise rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate.
"The build-up in steel stocks, especially among traders, will undoubtedly put pressure on the spot market," Wang explained.
On the other hand, the surge in COVID infections across China may continue to impact business activities nationwide till the CNY holiday, he added.
China's latest Purchasing Managers' Index (PMI) for the domestic manufacturing industry accurately illustrates this trend, Wang suggested.
In December, the index had declined for the third successive month by 1 index point to 47, keeping the reading within the contraction zone for the third month, according to the latest data from China's National Bureau of Statistics.
Last month, both supply and demand in China's manufacturing industry weakened, with the sub-index for new orders slipping 2.5 points lower on month to 43.9. Notably, the new orders sub-index has now been in contraction for six months.
Against this backdrop, Wang expected Chinese steel demand to weaken more markedly prior to the CNY holiday.
On the supply side, however, a rise in steel output has been detected recently due to the absence of the production curbs that would usually be placed on Chinese mills at this time of year to reduce air pollution during autumn and winter.
Mysteel's survey among 247 Chinese mills showed that over December 23-29, these mills' daily hot metal output increased by nearly 200,000 tonnes/day on average compared with the same period last year.
Moreover, Mysteel also estimated that average daily hot metal output at the surveyed mills this month will hover at a relatively high level of 2.26 million t/d, up by 340,000 t/d on month.
"As such, the accumulation of steel inventories in the lead-up to this year's CNY holiday will be even more pronounced than last year. So, the pressure on the post-holiday steel market will be evident," Wang warned. "Also, fundamentals may weaken the domestic steel market in January," he concluded.
Source:Mysteel Global
