Posted on 08 Jan 2021
As part of its decarbonization efforts, China’s MIIT is looking at reducing crude steel production this year. While this may boost expectations for a rise in steel prices, we foresee little actual impact. Moving ahead, economic recovery and high iron ore prices should support strong steel prices.
Extent of China’s steel price decline to be limited; further uptrend expected down the road
Chinese steel distribution prices began falling in late December, with the HR distribution price sliding 8.2% to RMB4,642/ton on Dec 30 from the 2020 high of RMB5,058/ton on Dec 15. Prices of CR, plate, and rebar dipped 5.9%, 6.1%, and 4.7%, respectively, from the 2020 peaks of Dec 22. Rather than signifying a downtrend, this decline appears to reflect a narrowing in the price of iron ore (Chinese import; Australian Fe 61.5%) from US$175.2/ton on Dec 22 to US$158.5/ton on Dec 30.
As possible causes of such Chinese steel price deterioration, we look to seasonal demand decline due to cold winter temperatures and inventory growth at retailers. Going forward, however, we expect steel demand to improve on the back of 2021 economic recovery, with overall price decrease being limited by the expected sustaining of strong iron ore prices. In addition, seasonal demand over March~May, as well as advance re-stocking in demand industries and at distributors, should support robust steel prices.
MIIT’s mention of reducing crude steel production this year to have minimal industry impact
Aiming to reduce the country’s carbon emissions by 2030, China’s Ministry of Industry and Information Technology (MIIT) has cited a y-y reduction in crude steel production this year as a main part of its decarbonization efforts. Such news is likely to boost expectations for both a rise in steel product prices and a fall in iron ore prices (due to weakening steel supply and a resultant drop in iron ore demand).
However, as the MIIT’s comments appear mostly to be clarifying long-term environmental policy, little actual impact is expected for the Chinese steel industry—particularly as no specific goals or detailed implementation measures have yet been presented. We also view it as unlikely that Chinese steel firms, which are enjoying profits in a time of steel demand growth, will reduce production. Of note, Platts has predicted that China’s refining and steelmaking capacity will increase from 1.24bn tons in 2019 to 1.26bn tons in 2020 to 12.8bn tons in 2021. Considering that China’s Metallurgical Research Institute has forecasted a 1.4% expansion in China’s steel consumption for 2021, it looks even more unlikely that China’s crude steel production will fall this year.
Source:Business Korea
