China's steel prices may recover further in September
...
Mysteel Global: With China's steel market entering the traditional peak season in autumn, the country's steel prices in September are expected to continue with the rising trajectory they have been following since late August, Mysteel's chief analyst, Wang Jianhua, predicted in his latest monthly outlook.
"Last month's price rebound was gained through significant sacrifices by the steel market," Wang commented. "The previous price plunges caused nearly all steelmakers in China to suffer losses and led to wide-ranging maintenance stoppages among the mills. The supply cuts finally laid the foundation for price recovery," he added.
As per Mysteel's assessment, on 19 August, China's composite steel price touched the lowest level since April 2017 at RMB 3,351.47/tonne ($470.6/t), including 13% VAT, before it rallied to RMB 3,453.17/t by 30 August. However, the price was still 3.9% lower than that at the end of July.
Entering September, with steelmakers gradually resuming operations after completing maintenance stoppages, China's steel supply is likely to expand this month.
Nonetheless, "as long as steel mills continue to keep their production under cautious control, the increase in steel output can be fully absorbed by the market," Wang maintained, noting that steel demand will also strengthen in September, as end-users' production activity will grow with the arrival of cooler autumn weather.
For example, under the recently released purchasing managers' index (PMI) for China's construction industry, the indicators for new orders, business activity expectations, and employment all increased m-o-m in August. This suggests that building contractors will expedite their work this month, and their consumption of construction steel will rise in tandem.
"As such, the inventories of old-standard rebar are expected to be fully consumed this month, and some regions may even witness shortages of rebar when the users restart their replenishment," Wang highlighted.
On the other hand, China's steel demand from the manufacturing industry remains resilient, as producers of automobiles, home appliances, and ships are all likely to keep their production robust this month.
Under such circumstances, Wang estimates that the total inventories of the five major steel products held by the 184 steelmakers and traders across the 35 domestic cities that Mysteel tracks will continue to drop by some 1 million tonnes (mnt) overall to 14.6 mnt during September. Specifically, rebar stocks are likely to decline by around 600,000 t this month.
"As steel fundamentals improve, there will be room for steel prices to rise further," Wang said.
Moreover, the increase in steelmakers' production will drive up the prices of steelmaking raw materials, including iron ore, coke, and steel scrap, which in turn will support steel prices.
However, "steel mills should approach the market recovery with utmost prudence," Wang noted. "If the mills become overly optimistic and ramp up production significantly, the balance between supply and demand will be destroyed once again," he added.
In 2024, China's steel sector experienced two rounds of price declines - the first during this year's first quarter and again over the past few months - which dashed the industry's hopes. "If the same mistake is made again, the market may face even harsher consequences," Wang cautioned.
Note: This has been written in accordance with an article exchange agreement between Mysteel Global and BigMint.