China: Lower steel output, gradual demand recovery expected in H2CY'22

During the first half of the year, China's domestic steel prices continued to rise under the influence of strong expectations and high costs. However, by mid-April 2022, due to the hike in interest rates and low demand, domestic steel prices began to fluctuate.

Moreover, a sharp decline in finished steel products prices also led to a pullback of raw materials prices. As a result, the domestic steel market witnessed a downward trend in the first half of the year.

How is H2 2022 likely to pan out?

The domestic steel market will continue to face the impact of various factors such as increasing pressure from the global interest rate hike and the prolonged period of expected stable growth.

Due to the sharp decline in steel prices, iron and steel mills have suffered significant losses which are pushing mills to gradually increase the intensity of maintenance and production cuts. Production by large and medium-sized steel mills was relatively less impacted. It is expected that the economy is likely to improve in the second half of the year and iron and steel mills may advance their production cycle to ensure the gradual return of steel demand. But the production capacity release of short-process iron and steel enterprises will be significantly suppressed.

China's economic focus is on enhancing the consumption of residents and enterprises and expanding effective investment. Therefore, in the second half of the year, the steel market may face weak demand which, however, is expected to gradually strengthen.

From the perspective of costs, due to the sharp drop in steel prices, the raw material side has also been significantly impacted. However, due to the gradual recovery in steel demand and the continuous implementation of the "dual carbon" strategy, raw material prices may see a moderate adjustment in the short term and should remain reasonably stable in the long term.

As a whole, the market will witness a hike in global interest rates, steady growth and shrinking supply along with low profits by steel companies in the second half of the year.