China's steel production is boosted by government incentives

China's iron and steel sector has already benefited from the country's rapid recovery from the Covid-19 outbreak and the restart of metal-intensive industries, while production and prices have declined in most other regions.

Shanghai rebar prices are up 50 yuan /t ($ 7 /t) to yen 3,490, while HRC hot rolled coil prices are up 110 yen /t to yen 3400 this month. The rise in prices in the Chinese market has led to another wave of exports and imports of semi-finished and finished steel products and an increase in domestic production as mills seek to increase profits.

Steel production by members of the China Iron and Steel Association (Cisa) in early May increased at the fastest pace since September 2019. Cisa members averaged 2.05 million tonnes /day of crude steel during May 1-10, up about 2% from April 21-30 and 0.3% from a year earlier, Cisa said.

Inventories at the Cisa plant fell 0.45% from the end of April to 14.7 million tons in early May, but this figure is up more than 50% since the beginning of the year.

"The rise in production and the fall in inventories amid high import volumes recently reflect the strength of domestic demand in China," said a Shanghai-based trader. Mills and traders expect additional incentive to be announced during the 13th National People's Congress (NPC), which is convened on May 22, which has been postponed since March due to lockdown measures.

There is talk in the market that Congress could pass a 10 trillion yen stimulus package, but no one can be sure before the meetings, a trader from North China said. The core of the package is likely to become the new infrastructure, he said. Policy will focus on stimulating consumption and supporting employment, but industry and infrastructure will remain the most important sector of the economy, said a trader from East China.

It is unclear if Congress will set a 2020 GDP target after first-quarter GDP contracted 6.9 percent from a year earlier. Participants said that if he sets a target, it will be lower than for 2019.

China's economic data shows that its industrial and construction sectors are largely recovering under the control of the virus. Excavator sales in April were up 60% year-on-year, while daily energy consumption rose to last year's level. Last week, the state council issued guidelines for the opening of cinemas and other large venues, and the central bank's statement this weekend sounded bluer than previous statements.