Steel prices in China in January may fall due to fundamental factors

Domestic steel prices in China may decline in January after sustaining gains they have achieved over the past eight months, especially as stocks of finished steel may rise in the weeks leading up to Chinese New Year holidays on February 11, shared his short-term development outlook market Wang Jianhua, chief analyst at Mysteel

Demand for construction steel will decline this month due to the cold winter, while too high prices currently may discourage the consumption of some steel for industrial use, Wang noted on his list of concerns, while some export contracts signed by high prices may be at risk of default by buyers.

In addition, persisting high steel prices could dampen domestic steelmakers' enthusiasm for stock purchases in the winter months in hopes of a rebound in spring demand, he said. According to him, at present, prices for basic long products and flat products are on average 634-1267 yuan per ton (98.2-196.2 dollars per ton) higher on average per year.

“The pandemic is spreading in foreign countries and new cases are appearing in China as well,” he explained. “Steel prices are undoubtedly at relatively high levels, and will stifle any interest in winter restocking unless prices move downward,” he suggested.

Moreover, support for domestic steel prices from high raw material prices could weaken as supply could increase and demand for iron ore from steel producers in China, for example, could decline for seasonal reasons.

At the same time, finished steel production in China could remain strong due to the rather good margins that producers can get, he predicts. By December 25, the average margin received by the country's independent electric arc plants was 435 yuan per ton. According to his forecasts, such a high margin will lead to a further increase in finished steel inventories.

“As of December 24, inventories of the five major steel products are up 6.8% year-on-year, which is a sign that inventories have reached a turning point for growth, and with the Chinese New Year holiday coming in seven weeks, stocks may grow. next, Wang warned.

However, he acknowledged that the scope for lowering domestic steel prices in January may be limited. He referred to relatively high volumes of exported steel - directly or indirectly, good demand for flat products and consistently high prices for domestic coke due to limited access to raw materials.

Throughout 2020