China's steel prices may rise in Feb on rising raw material costs

Chinese steel prices are likely to strengthen this month, as domestic steelmakers may persist in lifting prices to bolster their profit margins, Mysteel's chief analyst Wang Jianhua predicted in his latest monthly outlook. At the same time, the lower-than-expected inventory levels have given a boost to steel market sentiment, he observed.

As of January 30, China's composite steel price under Mysteel's assessment had gained Yuan 150.8/tonne ($22.3/t) from December 30 to touch a more than six-month high of Yuan 4,447.9/t, with the average price over January 3-31 being Yuan 128.1/t higher than that over December 1-30.

"Most domestic steelmakers lifted the ex-works prices of various steel products by Yuan 50-200/t in January," Wang noted. "And the prices are likely to rise further by Yuan 50-150/t in February," he predicted.

Due to the rising costs of raw materials such as iron ore and coke, most Chinese blast-furnace steel mills are still suffering losses when selling their products, Mysteel's survey found, with only 32.5% among the 247 sampled mills managing to make any profits as of January 27.

Eager to cut their losses, domestic steelmakers have become quite determined to continue to hike their prices, a trend that will press traders to raise their steel sales prices amid higher procurement costs, Wang explained. This will push up Chinese steel spot prices overall, he suggested.

Meanwhile, both steelmakers and traders have acquired more confidence about raising prices after seeing the unexpectedly small increment in domestic steel inventories during the Chinese New Year (CNY) holiday over January 21-27, according to Wang.

As of January 26, total stocks of the five major carbon steel items held by 184 Chinese steel mills and trading warehouses in 35 cities nationwide under Mysteel's tracking had risen by only 3.3 million tonnes from the pre-holiday level to 19.7 million tonnes, registering the smallest growth during any CNY holiday for the past seven years. The data showed during the CNY breaks in 2021 and 2022, total inventories had swollen by 7.5 million tonnes and 4.8 million tonnes respectively.

"The stocks data has given a major boost to market sentiment and provides firm support for steel prices," Wang said. "It will also encourage some traders and end-users with low steel inventories to replenish materials," he added.

According to Mysteel's assessment, the sentiment index among Chinese construction-steel market members had reached 90.72% as of January 27, hitting a more than 13-year high, a figure indicating that the participants were very optimistic about steel prices.

However, once the sentiment cools, domestic steel prices may pull back because actual steel demand throughout the country has barely improved, Wang warned.

"Currently, the rise in steel prices may encourage steelmakers to crank up production," Wang said. "Without a clear government policy for production restrictions, domestic steel output is likely to increase significantly in February," he added.

As steel consumption remains lukewarm, the steelmakers' active production will accelerate the accumulation of steel inventories among mills and retailers' warehouses, which may drag down steel prices, Wang noted. Nevertheless, he considers the possible price retreat as beneficial, since "the reasonable price drop" will contribute to the "sustainable recovery" of China's steel market.

Written by Anthea Shi, shihui@mysteel.com

Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and SteelMint.