China: Baowu Sees Long, Flat Steel Market Trends Distancing More

The divergence in market trends between long and flat steel products in China is likely to intensify this year because of the impact of COVID-19 on global and domestic steel demand, according to Wang Juan, Secretary of the Board of Baoshan Iron & Steel Co (Baoshan Steel), the Shanghai-listed arm of the world largest steel producer, China Baowu Steel Group (Baowu).

Demand for long steel products this year is almost guaranteed to be firm, given the central government's determination to further stimulate infrastructure construction, Wang noted during a Q&A session on Baoshan Steel's Q1 business performance on May 13. On the other hand, demand for flat steel products is expected to suffer more from the virus outbreak and the havoc it is causing to most countries' economies, including China's, she observed.

"Long steel products are mainly used in construction, and though work on domestic projects was stalled in Q1, activity has restarted with the resumption of commerce (last month) and (so) such demand is just delayed," Wang stated. "Besides, the central government has promised to boost infrastructure development further, which could buoy up demand for long steel," she added.

On the other hand, "flat steel products are mainly used for consumer goods, and because average income levels have declined across China as a result of COVID-19, part of that consumption demand may disappear," Wang maintained.

"Moreover, consumption of flat steel also relies largely on overseas demand, typified by the white goods industry. With the pandemic yet to be effectively contained abroad, demand for flat steel will likely to suffer more pressure in the near future," she said.

As of May 14, Mysteel's national price for HRB400 20mm dia rebar, the most representative of China's long steel prices, was at Yuan 3,682/MT ($518.6/MT) including the 13% VAT, down Yuan 144/MT from January 23 just prior to the start of the Chinese New Year holiday and before the COVID-19 virus started to rage throughout China.

In comparison, from January 23 to May 14, the national price for Q235 4.75mm hot-rolled coil, the most indicative of China's flat steel prices, had declined by a total of Yuan 314/MT to reach Yuan 3,525/MT, including the VAT, according to Mysteel's data tracker.

Baoshan Steel, whose core products are flat steel, foresees that its net profits in the first half of this year will decline severely on year, according to Wang. "We are facing a very challenging year this year (as) our major end-user industries such as auto-mobile and home appliance manufacturing still have a lot of uncertainties," she admitted.

Operating four production bases throughout China comprising Baoshan in Shanghai, Meishan in East China's Jiangsu, Qingshan in Wuhan in Hubei and Zhanjiang in South China's Guangdong province, during this year's January-March period Baoshan Steel's crude steel output totalled 11.84 MnT, close to the 11.8 MnT it produced during the same period last year, as Mysteel Global reported.

In Q1, the impact of COVID-19 on its business led the company's net profit attributable to shareholders to tumble to Yuan 1.5 billion, just over half the Yuan 2.7 billion it reported a year ago, as reported.