Chinese steel prices seen bottoming out in July - Mysteel

After a round of sharp declines in June, Chinese steel prices stand a chance of recovering this month, despite some downward pressure on multiple fronts, Wang Jianhua, Mysteel's chief analyst, suggests in his monthly market outlook.

Domestic steel prices have been slumping since mid-June, mainly due to healthy output among mills against slack demand and the weakening cost support from raw materials prices, according to Wang. Mysteel's survey showed that nearly 90% of domestic steelmakers were suffering losses from sales during the price decline.

However, Wang is still optimistic about steel prices this month. "It is such a bad situation that can urge steel mills to restrain their production and bring confidence to the market," he said, listing several scenarios under which prices might rebound. These included stronger policy support from the central government, an easing of the imbalance between supply and demand, and the waning of bearish sentiment.

At the BRICS Business Forum held in Beijing on June 23, Chinese president Xi Jinping pointed out that China will strengthen macro-policy regulation and take more effective measures to achieve the government's social economic development objectives. Xi's speech gave a boost to market expectations and dispelled some of the pessimism prevalent in markets to some extent, Mysteel Global learned.

Moreover, the People's Bank of China also suggested on June 25 that it is considering issuing special treasury bonds that would not be audited in the nation's deficit and which will accelerate the country's economic growth, driving up demand for steel as well, Wang predicted.

Regarding steel sector fundamentals, the demand for steel increased last month as disruptions caused by China's college entrance examination season and heavy rains in many areas eased, Wang noted.

According to Mysteel's survey, over the last week in June the apparent consumption volume of the five major steel products including rebar, wire, hot-rolled coil, cold-rolled coil, and plate increased to around 10.2 million tonnes, basically unchanged from the level at end-June in 2021.

Data released by the National Bureau of Statistics showed that the Purchasing Managers' Indices for the construction and manufacturing industries rebounded on month in June, indicating that both industries were expanding. Besides, Mysteel's survey also implied that in July, the new orders for steel from various sectors such as machinery and automobile manufacturing, and infrastructure construction, will increase.

Regarding supply, Wang suggested that more domestic mills will conduct maintenance stoppages this month in response to the heavy losses they were suffering when selling products. Among the 247 blast-furnace mills under Mysteel's tracking, only about 16% were still accruing profits as of the end of June. "(This) is a historical low level and will continue to force steel mills to curtail their production," he said.

"Meanwhile, at any time the government could issue a request that crude steel output be reduced, since economic growth stabilized in the second quarter," Wang remarked. "As such, the imbalance between steel supply and demand will be corrected, and reasonable profit margins could be guaranteed to steelmakers," he added

Wang also suggested that the bearish sentiment had largely disappeared from the market after the steel-price plunge in June, and that prices will gain more upward momentum this month.

"Supply can determine the price direction, and demand will decide the price resilience. Steel prices are likely to bottom out in July amid the wider introduction of production cuts among steel mills," Wang concluded.

Written by Anthea Shi, shihui@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.