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Steel fundamentals to firm further in October

Posted on 08 October 2021

Steel market fundamentals throughout China will likely improve further and more significantly in October, with the continued impact of China’s ‘dual’ policies of controlling steel output and curbing power consumption and intensity, according to the new monthly outlook, prepared by Wang Jianhua, Mysteel’s chief analyst.

 

In September, domestic steel prices climbed at a steady pace while steel output slumped as many provinces and cities strengthened efforts to control energy consumption, especially among energy-intensive industries such as steel, as Mysteel Global reported.

As of September 30, the national average price of HRB400E 20mm dia rebar, for example, increased by a total of Yuan 607/tonne ($94/t) on month to a 4.5-month high of Yuan 5,925/t including the 13% VAT, according to Mysteel’s assessment. Meanwhile, rebar output had declined for the fourth week in a row in the last week of September, standing at only 2.48 million tonnes, or just about the same level as in February 2020 when China was hit by the outbreak of COVID-19, according to Mysteel’s data.

Looking ahead, Wang believed that it will be “impossible” for local government efforts at controlling power use to be eased anytime soon, “unless (all regions) meet the requirements”. However, should there be any relaxation of the controls, steel end-user sectors will be able to resume faster than steel producers, simply because most steel consuming industries generally consume much less power. Were this to happen, it would support steel demand, Wang suggested.

Besides abiding by the controls on power usage, China’s steel sector will still have to comply with Beijing’s directive and keep crude steel output lower than last year for the rest of 2021, Wang noted.

By August, China’s crude steel output was till 36.9 million tonnes higher on year. “If (the steel sector) needs to meet the target by the end of November (which the domestic market is widely expecting) ...monthly average crude steel output over September-November should be limited to around 78.5 million tonnes, or 4.7 million tonnes lower than that in August,” Wang estimated.

“This is not a choice between energy control and output control. Both are imperative,” Wang emphasized. “Therefore, even though you meet the requirements of lowering energy consumption and intensity, you still have to curb production to meet the output reduction target, and vice versa; if you loosen steel output controls, energy consumption may then shoot up,” Wang stated in the report.

“Hence, it is no easy thing to suggest that the steel industry can resume production,” he commented.

On the steel consumption side, demand has been a key factor weighing on prices, Wang acknowledged. He noted that the government’s pressure on the country’s real estate sector is a crucial measure if Beijing hopes to rein in surging bulk commodity prices.

Nevertheless, Wang was confident there would be no crisis in the real estate sector, despite the wide publicity given to the plight of one of the country’s largest property developers, Evergrande Group.

“The serious problems that Evergrande is facing will be resolved in an orderly manner under the central government’s guidance,” Wang argued. And meanwhile, Beijing is actively promoting growth in other sectors such as infrastructure to offset any negative impact to the economy from its controls on the property market, he maintained.

The pickup in steel demand from the infrastructure sector so far has been slow, Wang acknowledged, due to many factors including cash constraints and the growing wait-and-see sentiment among project builders. But he noted that Beijing’s series of policies for improving liquidity such as accelerating the issuance of local government bonds, lowering interest rates, and the issuance of Yuan 300 billion to support micro and small businesses should help to accelerate progress.

“The (uptick in) demand is on its way, though just a little late,” Wang said, suggesting that steel market insiders should not be “overly pessimistic regarding steel demand in the remaining months of this year”.

Source : Mysteel Global