Shrinking demand may hamper Chinese steel prices - CISA

Chinese steel prices are expected to stay rangebound in the coming term in response to shrinking demand from end-users and ample supply, according to the latest monthly report of the China Iron & Steel Association (CISA) published on October 21.

Although domestic demand has remained stable this month - autumn is a traditional peak season for steel usage in China - steel consumption among end-users is likely to soften gradually with the cooling weather, the association pointed out. The decline in steel use will be of little support to domestic steel prices, CISA warned.

In parallel, the oversupply in the home steel market is unlikely to be reversed in the short term, which will also place great pressure on domestic steel prices.

During September, China produced 92.6 million tonnes of crude steel, up 10.9% on year, while the daily output rose by another 0.5% on month to a new record high of 3.09 million tonnes/day, CISA noted, quoting data from the country's National Bureau of Statistics.

Based on the production record of its member steel mills, CISA estimated that over the first ten days of October, the country's daily crude steel output averaged 3.07 million t/d, still staying at a very high level though showing a slight dip compared with that in September.

China's steel prices have also suffered under the weight of the high stocks held by both mills and traders, CISA said. As of October 10, the stocks of the five major steel products comprising rebar, wire rod, HRC, CRC and medium plate held by CISA's member steel mills totalled 13.6 million tonnes, jumping by 17.2% from late September or surging by 42.6% from the beginning of 2020.

Inventories at traders' warehouses in the 20 cities across China which CISA checks regularly witnessed sharper growth of 5.8 million tonnes or up by a huge 85.3% from the beginning of this year to top 12.6 million tonnes as of October 10, CISA's data showed.

Meanwhile, prices of imported iron ore are staying high, further squeezing the profit margins of Chinese steelmakers, the association noted. As of October 16, the price of Fe 62% imported iron ore fines was $118.43/dmt CFR China, up 30.8% from the beginning of 2020, while CISA's Composite Steel Price Index only saw a rise of 0.9% during the same period, CISA remarked.

China's steel exports face more challenges with the on-going battle against COVID-19 globally and the increase in trade friction. The latest Short-Range Outlook (SRO) of the World Steel Association released on October 15 showed that global steel consumption may decline 2.4% on year in 2020. Steel demand in China may grow 8% on year, while global demand outside of China is expected to drop 13.3% on year, it said.

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

Photo: World Steel