Steel prices in China in November will depend on raw material prices

In November, China's steel prices will be more reflective of its own fundamentals and may stand a chance of recovering from declines for most of October due to thermal coal prices, Wang Jianhua, chief analyst at Mysteel, shared his monthly forecast.

This month, the impact of coal-related raw material prices on ferrous metals, including steel, will weaken, Wang said, as limited steam coal supplies to the country have eased significantly and market speculation has thus eased, allowing the market to return to normal course.

“After a major correction in a series of coal-linked ferrous metals futures, sentiment in the Chinese steel market could turn for the better due to continued depletion of steel reserves in November and prices could drop to the bottom,” Wang said.

China's steel market fundamentals could also support a rebound in prices, he said, as supply will continue to be cut due to Beijing's determination to cut steel production from 2021 and reduce energy consumption and the intensity of energy-intensive factories.

“To achieve an annual reduction in steel production of 20 million tons from 2020, China will need to cut production from last year by 35.8 million tons, which means that many local authorities need to take action now,” he predicts. , explaining that Beijing will Probably from November will consider progress in reducing local steel production.

In addition, winter restrictions on steel mills in North China will also start in November, while district heating will start before March 2022.

He noted that Tangshan, China's main manufacturing base in northern China, has already intensified its efforts to further reduce local steel production by the end of October, which is estimated to reduce steel production by an additional 70,000 tonnes per day, adding that some other Chinese mills voluntarily limited their production due to losses due to the recent fall in steel prices at high production costs.

In October, the price of 20mm HRB400 rebar in China, which is a key benchmark for the Chinese steel market, fell sharply after hitting a five-month high of 6039 yuan per tonne ($ 943.6 per tonne) on October 9, ending the month at 5361 yuan per tonne. ton. or fell 564 yuan a tonne from the previous month, and the share of profitable factories fell to below 70% by the end of October from about 78% in November, according to a Mysteel study of 63 factories across China.

On the demand side, steel consumption in China's real estate sector could contract further, while the domestic infrastructure sector may improve marginally as some projects may need to be completed by the end of the year and the country's manufacturing sector may consume more steel, although production automobiles and home appliances "could decline in November," he added.

Steel consumption in China, in particular long positions, was much lower than expected last month, due in part to price volatility, capacity rationing in energy-intensive enterprises affected by some producers, and uncertainties in production and the national economy such as the market. real estate, Wang said. in several cases.