Posted on 18 Jul 2024
After experiencing an overall downturn in the first half of this year, China's steel market is projected to stay under pressure during the second half, with average steel prices to move lower amid the persistent weakness in downstream steel demand, while Chinese steelmakers may see their profits slightly improve as steel output across the country is expected to be reduced under both policy regulation and market stimulation, according to Mysteel's latest market outlook.
Slow recovery in steel consumption from downstream sectors
Construction steel demand from China's struggling property market – the largest steel consumer in the country - will continue to decline in H2, remaining a main drag on the domestic steel market. However, a few positive signs in property delivery and sales have emerged, thanks to the country's housing support packages for clearing inventory and lifting homebuyer demand.
The infrastructure sector, another major steel user in the country, is experiencing a slowdown in new projects due to the relatively slow issuance of special bonds so far this year. China's fixed asset investment in infrastructure construction may increase by 5.5% in 2024, compared with the 5.9% growth in 2023, Mysteel predicts.
China's manufacturing sector will keep benefiting from the country's campaign encouraging large-scale equipment upgrades and replacement programs for consumer goods, serving as a main vehicle to shore up steel consumption, Mysteel believes.
Specifically, the machinery industry may welcome a new round of updates and signs of recovery in line with the campaign. For example, China's total sales of excavators to both domestic and overseas markets are expected to grow 2.6% on year to reach 200,000 units in 2024, Mysteel estimates based on data from the National Bureau of Statistics (NBS).
The strong performance of home appliances is likely to sustain in H2 thanks to the trade-in initiatives domestically and replenishment demand from overseas markets. Similarly, robust growth in shipbuilding is predicted to be maintained, supporting its steel use during the next six months.
However, with increasing trade frictions, China's automobile industry may lose some strength in H2, Mysteel notes, citing the European Commission's imposition of extra duties of up to 38.1% on imported Chinese electric cars starting in July.
Steel exports may dip in H2, full-year exports remain substantial
Considering the slow recovery in domestic steel consumption, Chinese steelmakers will keep seeking opportunities in the international market, leveraging the long-enjoyed price advantages of their products, Mysteel notes.
However, their steel exports might face more pressure in H2 with rising trade frictions. By end-June, a total of 10 trade investigations had been announced against Chinese steel products by different countries, according to the data from the China Iron and Steel Association.
Moreover, as China's domestic steel prices decline, the price spread between Chinese steel products and foreign ones has also narrowed, weakening their price advantages in overseas markets.
Forecast of China's major ferrous commodity prices
Product | Avg price H2 2024 (E) | YoY chg | Var from H1 2024 | Avg price 2024 (E) | YoY chg |
HRB400E 20mm diameter rebar in Shanghai (Yuan/t) | 3,640 | -5.4% | -2.0% | 3,677 | -6.3% |
4.75 mm hot-rolled coil in Shanghai (Yuan/t) | 3,825 | -2.2% | -1.6% | 3,855 | -3.8% |
Mysteel SEADEX 62% Australian Fines ($/t) | 105 | -13.3% | -10.7% | 111 | -6.8% |
Anze primary coking coal in Linfen (Yuan/t) | 1,900 | -13.9% | -10.9% | 2,016 | -7.0% |
Quasi-first-grade coke in Lvliang (Yuan/t) | 1,750 | -15.7% | -6.4% | 1,810 | -15.4% |
≥6mm carbon steel scrap in Zhangjiagang (Yuan/t) | 2,350 | -8.6% | -8.0% | 2,452 | -6.7% |
E: estimated
Steel output in China to be reduced in H2
In late May, China released an action plan for energy conservation and carbon reduction for 2024-2025, which has raised market expectations for steel production cuts in H2, as reported.
Additionally, steel mills will also consider voluntarily reducing production when profit losses bite. In fact, some mills had called for production curbs once in mid-March to fix market sentiment and reduce losses brought by weak steel demand at that time.
China's crude steel output for H2 may reach around 472 million tonnes, an 11% decrease compared with the first half, Mysteel estimates based on data from the NBS.
Domestic steelmakers are likely to see their profitability improve slightly as production costs may fall with the forecasted declines in prices of steelmaking raw materials amid a restrained supply of steel, Mysteel suggests.
Source:Mysteel Global
