China's steel market fluctuates in April, may rebound marginally in May

• Mills return to slight profit, production rises in Apr
  
  
• Construction demand under pressure, PMI resilient
  
  
• Inventory declines as end-user demand looks up
  
  

Morning Brief: In April 2024, China's steel prices fluctuated and eventually rebounded thanks to the confluence of several factors. These included government policies, and increase in downstream demand, which led to depletion of social inventory (inventory outside of mills).

Overall in April, the national average steel price was at RMB 3,988/tonne ($522/t), down RMB 71/t ($10/t) m-o-m or 1.8%, but the decline narrowed by 2.7 percentage points m-o-m.

In end-April, indexed prices rose to RMB 4,037/t ($559/t), up RMB 103/t ($14/t) from the level in end-March, a m-o-m increase of 2.6%, and a y-o-y decrease of 3.6%. Long products averaged RMB 3,875/t ($536/t), increasing by RMB 197/t ($27/t) compared to end-March, up 5.4% m-o-m, and down 1.5% y-o-y. Flats prices stood at RMB 4,125/t ($571/t), up RMB 38/t ($5/t) from end-March, and a slight 0.9% m-o-m, and down y-o-y by 4.7%.

As of end-April, except for cold-rolled coils and seamless pipes, prices of all other products increased.

April sees production rebound as profits return

In March 2024, due to the weak end-user demand and impact of raw material costs, the domestic steel market showed a rapid decline. The national average daily crude steel production in March was at 2.85 million tonnes (mnt), an increase of 1.7% m-o-m but this had significantly narrowed by 27 percentage points compared with January-February levels.

However, since April, with mill's profits recovering somewhat, they showed an inclination to increase production. Crude steel supply from large and medium-sized mills rebounded again. Thus, in early to mid-April 2024, their average daily crude steel output was at 2.12 mnt, a m-o-m increase of 3% but y-o-y decrease of 8%. The average daily finished steel output of key mills was 2 mnt, a m-o-m increase of 3.4% and a y-o-y decrease of 8%.

Daily crude steel output in April may increase to around 2.9 mnt.

Demand still under pressure

Construction demand: In April, as projects started, demand for building materials continued to resume but remained under pressure. Building materials transactions increased m-o-m, but still showed a slight decline y-o-y. The average daily trading volume of construction steel in 20 key cities in April was at 177,000 t, up 30,000 t m-o-m 20%, but down 2% y-o-y.

With the implementation of national projects, infrastructure investment is expected to maintain a growth trend, while real estate policies are expected to lead to gradual stabilization of this market. However, the y-o-y decline in real estate investment is difficult to reverse in the short term and will still be a drag on the demand for construction steel.

Domestic manufacturing resilient: Currently, the manufacturing industry is declining slightly. The China Manufacturing Purchasing Managers Index (PMI) in April 2024 was at 50.4%, down 0.4 percentage points m-o-m, but still increasing, indicating that the economy continue to be in recovery mode.

Inventory declines: Social inventory continued to decline last month. By end-April, social inventory of steel in 29 key cities was at 13 mnt, a m-o-m decrease of 16% and a y-o-y increase of 0.8%.

Raw material

Iron ore prices volatile: Iron ore showed a volatile trend last month. Average prices of the Fe66% grade in Tangshan was at RMB 1,009/t ($140/t), flat m-o-m. Imported Fe61.5% fines in Rizhao Port from Australia touched RMB 845/t ($117/t), an increase of 13% m-o-m. But, in end-April, prices of the Fe66% grade (Tangshan) rose to RMB 1,060/t ($147/t), up RMB 130/t ($18/t) from end-March while imported Australian Fe61.5% fines in Rizhao Port were also up at RMB 870/t ($120/t), an increase of RMB 110/t ($15/t) compared to end-March.

Coke fluctuates: The average price of secondary metallurgical coke in Tangshan in April hovered at RMB 1,710/t ($237/t), a decrease of RMB 190/t ($26/t) or 10% m-o-m. But by end-April, prices rose to RMB 1,900/t ($263/t), an increase of RMB 200/t ($28/t) compared to end-March. Coke prices saw several rounds of ups and downs last month.

Scrap prices increase: Scrap too was volatile. The average price in Tangshan area in March was RMB 2,540/t ($352/t), down RMB 53/t ($7/t) m-o-m. But, in end-April, prices increased by RMB 120/t ($16/t) to RMB 2,590/t ($359/t), compared end-March.

What lies ahead in May?

The global manufacturing PMI continues to rebound, indicating that the global economic recovery is relatively stable. The IMF has raised its forecast target for global economic growth in 2024.

Within China, with the intensification of macro control, policy effects continue to emerge, allowing demand to rise steadily. The employment rate is stable, and market confidence and economy continue to rebound. Large-scale equipment renewal, consumer goods trades, as well as investments in ultra-long-term special government bonds, and funding for major projects are looking up, which will consolidate and enhance the recovery.

Steel production remains comparatively higher on the heels of the profit recovery. Steel production in May is expected to remain on the higher side m-o-m.

Inventory outside of mills will continue to decline in May, but since the rainy season is early, it will restrict demand growth, and the market destocking speed is expected to slow down. Rains in the southern region may impede construction, which will impact demand for construction steel here.

But considering the increasing cost support, the domestic steel market may show a slight rebound in May 2024.