Steel prices expected to rise in China in October

Chinese steel prices are likely to recover in October as market fundamentals improve and macroeconomic support policies come into effect, Wang Jianhua, chief analyst at Mysteel, predicted in his monthly forecast. But pessimism still haunts the market, he acknowledged.

As of September 26, the national price of composite steel in China, according to Mysteel, fell by 13.8 yuan per ton (1.9 US dollars per ton) from August 31 to 4,209.1 yuan per ton, with an average price of the period from 1 to 26 September lost 104 yuan per ton for a month.

Market participants can probably expect further price drops in the coming months, Wang said. “Market sentiment will inevitably be dampened by a consistent policy to contain the spread of COVID-19, the approach of the traditional “heating season” in the northern regions of China (when steel production is often reduced) and fears of a global economic downturn,” he explained.

However, he suggested there was no need to be so pessimistic as domestic steel demand showed signs of recovery in September.

For example, the daily trading volume of construction steel, including rebar, wire rod and coiled bars, among the 237 Chinese trading houses tracked by Mysteel averaged 182,288 tons per day from September 1 to 29, up 34,857 tons per day or 23. 6% more than last year. average daily trading volume in August. It was only on September 27 that the volume even reached an annual high of 276,754 tons.

“Actual consumption over the past two months has convincingly disproved the market bears' claims that steel demand in China has fallen by 30-50% over the past year,” Wang said. He stressed that market participants must restore confidence in steel prices.

As for October, traditionally a month of high steel consumption in China, there is room for further growth in steel demand, he added, as most construction companies will ramp up construction projects as long as the weather remains cool and mild. End-users of steel will replenish raw materials as their current stocks of steel are rather low.

Meanwhile, the liquidity of financial assets in China continues to improve with the growth of government tax revenues, and national investment in infrastructure and manufacturing has increased in recent months, providing solid support for steel prices.

On the other hand, according to Mysteel, the supply of steel on the domestic market is likely to decrease in the coming months, and this will also lead to an increase in steel prices.

Of the 247 domestic steel mills monitored by Mysteel, only about half made some profit on their finished steel in September, and many teetered on the brink of losing money — a situation that has already prompted steelmakers to refrain from ramping up production, Wang said. .

Given the steel mills' voluntary production cuts and their challenge to keep total steel production lower this year than last year, Mysteel estimates China's steel production will rise slightly to 86.5mt in October before staying below 80.4mt. million tons in October. November and December are close to the lowest levels this year.

In addition to improving the balance between supply and demand, higher commodity prices could also support steel prices, Wang added. Widespread production shutdowns at coal and iron ore mines following frequent accidents are likely to lead to shortages of these commodities amid steelmakers' demand for restocking.

“Steel mills have a key opportunity to manage rising steel prices through sensible production cuts,” Wang commented. “After falling for almost six straight months, domestic steel prices now have a chance to bounce back, thanks to stronger fundamentals and supportive macroeconomic policies,” he said. “And if the government strengthens its fiscal support policy and if domestic lockdowns to contain COVID can be avoided, prices will gain more momentum,” he concluded.