Posted on 28 Apr 2023
Prices of construction steel items and steelmaking raw materials in China have been steadily falling since mid-March, and will likely keep fluctuating at low levels until a new balance is achieved between domestic steel supply and demand, market sources observed.
China's national price of HRB400E 20mm dia rebar, a key construction steel item in the country, hit a more than five-month low of Yuan 3,884/tonne ($561/t) including the 13% VAT as of April 25, slumping Yuan 532/tonne or 12% from March 14, Mysteel assessed.
"Such a rapid drop in the prices barely left any room for steelmakers to react before they started losing money," a market analyst based in Beijing commented.
Pessimism has been the main drag on prices as the expectations of market participants for a strong steel demand recovery are yet to be realised, and the central government's strict monitoring of iron-ore price trends has further intensified the gloomy sentiment, Mysteel Global noted.
Market players' confidence has been hard hit by the underperformance of the domestic real estate industry, the sector consuming more than half of the country's steel, Mysteel Global learned.
For example, the total area of new property projects nationwide launched during January-March slumped by 19.2% on year to 241.2 million sq m, according to a release by the National Bureau of Statistics.
This suggests that demand for construction steel from the property sector is unlikely to improve markedly in the coming two months, the analyst noted. Moreover, though spring is usually a peak season for steel consumption in China, the season is drawing to a close without any noticeable bounce in business for the steelmakers.
During April 20-26, China's total apparent consumption of rebar retreated to 3.29 million tonnes/week from this year's peak level of 3.57 million t/w recorded in mid-March, Mysteel's survey showed. With the recovery of building industry demand being lukewarm at best, rebar consumption is likely to sink lower and stand between 2.8-3.3 million t/w over May-June, according to Mysteel's forecast.
On the other hand, Chinese steelmakers have gradually reduced their production in response to the thinner or even negative margins, with more than 30 mills nationwide starting to conduct maintenance on their blast furnaces as of April 25, as Mysteel Global reported.
Mysteel's other survey showed that as of April 25, steelmakers in North China's Hebei were losing some Yuan 385 for every tonne of rebar they sold, a loss that may entice more mills in the region to curtail production next month.
Under such circumstances, total hot metal output among the 247 steel mills under Mysteel's tracking is expected to average 2.38 million tonnes/day over May 1-31, lower by some 78,800 t/d or 3.2% from that over April 1-20, Mysteel calculated.
In the meantime, steelmakers are protecting cash flow by idling rebar lines and ramping up the production and sales of other products where their losses on sales are smaller, such as billets and medium plates, Mysteel Global learned.
For example, steelmakers in Hebei's Tangshan have lifted their billet output this month, as average daily billet production among the 30 local mills under Mysteel's survey had jumped 24% on month to reach 59,400 t/d over April 14-21, a new high since early January 2021.
The surge in supply is placing great pressure on billet prices in Tangshan, as demand for the semis among local re-rollers continues to fluctuate, another market watcher based in Tangshan observed. This may force the steelmakers to reduce billet output as well, she noted.
"Given the mills' plans for production cuts, domestic prices of construction steel may not continue falling as drastically," the Beijing-based analyst believed. However, "the prices have not yet reached bottom, and the market is still looking for a balance between the supply and demand," she warned.
"Without a strong driving power for the steel demand, prices are likely to stay rangebound in the near term," she predicted.
Source:Mysteel Global
