Insiders: Economic recovery, weaker greenback stimulate steel demand

Posted on 10 February 2021

Domestic steel demand and prices are expected to grow this year on the back of economic recovery in China as well as overseas, industry insiders said.

In addition, expectations that the US dollar will further depreciate are adding to the buoyancy in the market, they said.

Chen Kexin, chief analyst of the Lange Steel Research Center in Beijing, predicted that apparent steel consumption in China will exceed 1.06 billion metric tons this year, up more than 4 percent year-on-year.

“The expected acceleration of economic recovery in both China and the rest of the world will provide a solid base for China’s steel demand and exports to grow,” he said, attributing the growth recovery impetus mainly to the deployment of anti-COVID-19 vaccines and expansionary monetary policy adopted by many major economies.

Mainstream forecasts about China’s GDP growth this year are around 8 percent, a sharp rebound from 2020 that will offer a low base. The world economy is also predicted to bounce back from the deep decline last year.

The Organization for Economic Cooperation and Development estimated in December 2020 that vaccination campaigns, concerted health policies and government financial support were expected to lift global GDP by 4.2 percent this year, after a fall of 4.2 percent in 2020.

The recovery would be stronger if vaccines are rolled out faster, boosting confidence and lowering uncertainty, some experts said.

At the end of January, the International Monetary Fund raised its estimate for global economic growth to 5.5 percent this year, reflecting expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies.

The depreciation of the US dollar also helps propel domestic steel product prices and imports, Chen said.

The US dollar index contracted 6 percent last year, and the US dollar is likely to further depreciate this year due to low interest rates and immense fiscal stimulus spending.

Stated differently, the costs of raw materials for Chinese steel mills, which mainly rely on imports, will rise, thereby increasing prices of finished steel products, he said.

Besides, a large amount of foreign investment inflows is expected to boost prices of steel futures, given the policy-driven liquidity increase in several major economies. China’s strong economic rebound make it more attractive to foreign investments, he said.

He predicted the average price of iron ore imports will be about $110 per ton this year, much higher than that seen in 2020.

He also predicted steel imports will be about 21 million tons this year.

Xu Xiangchun, information director and analyst with Mysteel, an iron and steel consultancy, said he also believes that steel demand will rebound, and expectations of inflation due to US dollar depreciation will likely shore up China’s steel prices this year.

However, since the demand rebound this year is not so strong as it was in the second half of last year, steel prices are likely to fluctuate, but at high levels, throughout the year, he said.

He estimated the average steel price this year will be 15 percent higher than that last year.

Source : China Daily