China: Steel prices likely to rebound in Sept
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Chinese steel prices are likely to rebound this month after August's retreat, as the market fundamentals are expected to improve while the central government is progressing its policy support for the macro economy, Mysteel's chief analyst Wang Jianhua predicts in his monthly outlook.
Domestic steel prices softened overall last month, mainly because of the steelmakers' over-eagerness to produce, Mysteel Global noted, since demand from end-users failed to show any marked signs of recovery amid the usual summer lull in steel consumption.
As of August 31, China's composite steel price under Mysteel's assessment had settled at Yuan 4,065/tonne ($567.9/t), lower by Yuan 89.4/t or 2.1% from July 31.
The decline in steel prices, combined with the strengthening of iron ore prices, led more mills to struggle with negative margins last month, Mysteel's survey showed. By August 31, only around 45% of the 247 steelmakers under Mysteel's tracking were able to make some profits, lower by 20 percentage points compared with that at the end of July.
"The losses (on finished steel sales) may force some mills to rein in production in September," Wang commented. "To some extent, this will alleviate the pressure of ample supply on steel prices," he added.
Meanwhile, more steelmakers in East and Central China have started planning to curtail production to comply with the central government's request that domestic crude steel output this year should be no higher than in 2022, as reported.
Mysteel's survey showed that China's daily crude steel output averaged 3 million tonnes in August, largely unchanged from that in July.
"If domestic mills are to fully conform with the government's directive, their daily output should be no higher than 2.45 million t/d during September-December, which translates to a more than 500,000 t/d reduction from the current level," Wang assessed.
On the other hand, steel demand in China is expected to rise in September with the approach of autumn, the country's traditional peak season for steel consumption, Wang noted. "The cool weather will encourage construction companies to extend their working hours on building projects," he said.
"Moreover, many construction projects were interrupted by the frequent typhoons last month, and the contractors may rush to expedite work on them once they can start normal operations," he added.
With steel supply shrinking while demand is growing, China's steel prices will gain more solid support for a recovery in September, Wang believed.
In addition to the fundamentals, the improvement of market sentiment may also drive up the country's steel prices this month, as the central government is rolling out a package of policies to stimulate domestic steel demand.
For example, the authorities in South China's Guangzhou and Shenzhen announced on August 30 that the current restrictions on residents' applications for mortgage funding for local housing will be relaxed, as reported. This will facilitate property sales and so expand steel consumption, Mysteel Global noted.
However, once the reduction in crude steel output materializes, the prices of steelmaking raw materials will move downward, Wang warned, noting that this is likely to weigh on domestic steel prices this month.
"The steelmakers' enthusiastic production had helped iron ore prices to firm overall last month, but it's just a matter of time before prices retreat," he remarked. "The longer they stay trending upward, the more significantly they will fall when ore demand wanes," he added.
On August 31, Mysteel PORTDEX 62% Australian Fines in Qingdao was assessed at Yuan 924/wmt FOT and including the 13% VAT, higher by Yuan 36/t from July 31.
Written by Anthea Shi, shihui@mysteel.com
Edited by Zhenqi Yang, yangzhenqi@mysteel.com
Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and SteelMint.