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China’s steel demand to rebound in September

Posted on 02 September 2021

In September, China’s steel demand is expected to rebound on month while supply will vary little from August, which in all may lend support to the domestic steel prices, resulting in some recoveries on month, Wang Jianhua, Mysteel’s chief analyst, maintained in his monthly forecast.

 

China’s macro-economic performance over July-August had been below the expectation due to the series of factors including the serious flooding in Central China’s Henan province in late July, the resurgence of COVID-19 cases since the end of July and the persistent serious shortage of auto chips, which in turn dampened domestic demand for steel, Wang noted.

This month, though, steel demand will pick up in China as the pandemic has been under control and Henan will probably go into post-flooding reconstruction, he named a few, admitting, though, that the auto chips shortage is unlikely to ease in the near term.

China’s local authorities have been rather stringent in the pandemic control, and normal economic orders can only be resumed when there are no more new daily local cases, Mysteel Global understands, and as of August 30, China had reported zero new domestic COVID-19 cases for three days in a row, according to the official data.

Besides, September is usually a robust steel consumption season in China with the pleasant autumn that is conducive to outdoor construction activities, a core steel consumer in the country, according to Wang.

Construction pace has shown signs of picking up in China, as suggested by Mysteel’s survey across 4,328 construction projects, which showed their operational rate reached 76.9% on August 17, up 18.5 percentage points from the start of August, Wang highlighted.

As for China’s macro-economic environment, the government policy will still be in place to counter downward pressure in its economic growth, which will shore up the domestic steel demand to some extent, Wang shared. “China will still stick to necessary measures… to achieve (Beijing’s goal of) economic growth amid stability,” he added.

China’s local governments, for example, have accelerated their issuance of government bonds, which is interpreted as part of the efforts in sustaining the economy, and over August 1-27, China issued new local government bonds valuing Yuan 578.7 billion ($89.6 billion) with Yuan 474.1 billion for specific use such as infrastructure structure, or the highest monthly issuance in value so far in 2021, Wang highlighted in his report.

As for September, China’s local authorities have already confirmed issuance of government bonds valuing Yuan 509.7 billion in total so far, Wang noted.

Globally, economy and trade are both steadily recovering with China a core player, as indicated by the record highs in the Baltic Dry Index (BDI) and China Containerized Freight Index, which will also support China’s steel consumption directly or indirectly, even though the country’s direct steel exports may decline further this month, he commented.

This month, China’s crude steel output may rebound on month but the difference will be marginal, according to Wang. “On-month recovery in demand may boost crude steel output from August on higher profits, but the difference will be minor, and to lower the country’s steel output on year for 2021, any significant on-month increase in output should be avoided,” the chief analyst stated.

In the overall steel environment, iron ore prices will return to the downward trajectory in September after a short-lived rebound towards the end of August, mainly due to higher supply while less demand, and prices of coke and coal will also retreat from their respective record high on the ease in supply, he commented briefly.

For the rest of this year, Wang expects China’s steel demand to “sustain at a certain level (in contrast to usual off-season in winter)”, as Beijing would like to see “actual results” in local government bonds issuance for the rest of this year or early next year, while China’s steel prices may experience fluctuation if Chinese steel mills stick to cutting down on steel output until the end of the year.

Source : Mysteel Global