Chinese steel prices to stay range-bound in the near term - CISA

Chinese steel prices are expected to keep range-bound in the coming term with the recovery in steel production and the measures China's authorities are taking to stabilize the economy, according to the latest monthly report of the China Iron & Steel Association (CISA) released on February 22.

Domestic steel demand may recover gradually as the arrival of warm weather will lead to starts being made on major projects, CISA said, fueling hopes for the steel market in the coming term. Many provinces are pushing ahead with project construction after the Chinese New Year holiday ended on February 6, and some local governments have stipulated that during this quarter, the operating rate of major projects should be more than 60%, the association pointed out.

The growth in steel supply is likely to see a slight lag in the near term, as steel mills in the "2+26" cities across the Beijing-Tianjin-Hebei region (prone to suffer heavy smog in winter) will remain under production curbs for the winter heating season until March 15, CISA noted.

For the first ten days of February, daily crude steel output among CISA's member mills averaged 1.92 million tonnes/day, down 4.5% from late January, and based on the result, the association estimated that daily crude steel output nationwide slipped by 1.6% during the same period to 2.5 million t/d.

However, any sharp growth in domestic steel prices in the coming term is difficult to imagine as finished steel inventories held by domestic traders and steel mills have increased significantly, CISA warned.

As of February 10, total stocks of the five steel major products comprising rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate in the 21 Chinese cities surveyed by the CISA reached 12.36 million tonnes, soaring by 28.3% from the end of January, or higher by 56.9% from the beginning of this year. Meanwhile, the volumes held by CISA's member mills also jumped by 23.2% from late January to 16.85 million tonnes, according to the report.

For the coming term, the association suggested that to stabilize steel prices, Chinese steelmakers must decide their production plans based on market demand. At the same time, domestic mills also face great pressure to reduce their production costs as the prices of major steelmaking raw materials such as imported iron ore, coking coal, coke and scrap have been hovering high, the association noted.

Written by Nancy Zheng, zhengmm@mysteel.com

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