Steel prices in China rebounded sharply May 8 on optimism over reduced steel output, but the rally may run out of steam as some market participants saw production curbs not enough to offset weak demand.
The Chinese domestic hot rolled coil prices in Shanghai spot market jumped Yuan 100/mt ($14.5/mt) on the day to Yuan 3,950/mt on May 8, while the rebar spot market prices in Beijing was up Yuan 90/mt on the day to Yuan 3,750/mt, S&P Global Commodity Insights data showed.
The gains come after output controls were announced in northern China’s Tangshan city, the country’s largest steelmaking hub.
However, according to market participants, actual steel output cuts at mills remained at a smaller scale, and the price rise would discourage further production control, which may even lead to a rebound in steel output.
Steel output controls
Tangshan city’s Fengnan district government issued a formal notice on May 6, requiring all local steelmakers to ensure their annual crude steel output in 2023 remains at or below 2022 levels.
The market sentiment improved on May 8 following the announcement, as industry players took that as a sign of Beijing introducing broader output cuts across China — a move the country has been eyeing every year due to decarbonization efforts.
According to a mill source in eastern China, keeping annual crude steel production this year at par with 2022 levels was China’s overall goal.
But he added that China’s production control target would be again discussed in the second half of the year to see if further output controls are needed.
China’s crude steel output totaled 261.56 million mt over January-March, up 6.1%, or 15.04 million mt, on the year, latest data from the National Bureau of Statistics showed.
So, in order to keep 2023 crude steel output within 2022 levels, crude steel output over April-December should be maintained at 756.4 million mt, or 2.751 million mt/day, down 11% from the daily average seen in March, S&P Global calculations showed.
Output controls too small
“I think to just keep 2023 crude steel output on 2022 levels is not good news for the steel market, because China’s steel demand is very likely to decline from 2022 level, given the slowdown of property steel demand and sluggish demand in manufacturing sector,” a mill source in northern China said.
“The central government hasn’t ordered steel production to decline from 2022 level, because a cut on steel production will add pressure on economic growth. But in order to boost steel prices, I think steel output must decline below 2022 levels, probably by no less than 2.5%,” another market participant said.
China’s property sales, the major channel to fund new projects, declined again in April after some improvement in March, according to local media reports.
Some market sources said the improvement in home sales in March was mainly due to delayed demand from late-2022 and early-2023, and most Chinese cities would continue to struggle with housing oversupply and high debts of developers this year.
China’s property sector is also a decisive factor for the social investment and the domestic consumption, they added.
“China’s steel production has declined since mid-April due to poor profit margins at mills, and the downward trend is likely to continue in May. However, the decline in steel production has so far remained modest, and steel demand appears to be falling faster due to rainy season factor and the bleak demand in property and its related sectors in May,” a Guangdong-based trader said.
Some market sources expected the fall in China’s steel production to even slow down in the week to May 12, as some mills have regained marginal profits after the rise in steel prices.
Post time: May-16-2023