Excess supply to weigh further on Chinese steel prices in July

After sliding steadily in June, Chinese steel prices are expected to ease further in July under the pressure of deteriorating steel fundamentals, Mysteel's chief analyst Wang Jianhua predicts in his latest monthly outlook.

On June 30, Mysteel assessed China's national composite steel price at Yuan 3,453/tonne ($508.2/t) including the 13% VAT, lower by 2.2% from a month earlier.

Domestic steel prices have lost ground as steelmakers maintained robust production last month, despite the gradual waning of demand among steel end-users, Wang noted. Entering this month, the ample supply is expected to place major downward pressure on prices, he warned.

By the end of June, the total hot metal output among the 247 blast furnace (BF) steelmakers under Mysteel's tracking averaged 2.43 million tonnes/day, rising 0.8% on month and touching the highest level since May last year.

With the traditional summer lull in domestic steel consumption approaching, the market was unable to absorb the relentless stream of steel items being shipped by the mills, which caused steel inventories across the country to swell, Mysteel data show.

By June 25, the total inventories of the five major carbon steel products – rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate – held by steelmakers and trading houses across the 35 Chinese cities under Mysteel's tracking had ended the steady decline starting from mid-March and rebounded to 16 million tonnes, higher by nearly 4% from the end of May.

Steelmakers may not raise production any further in July, but their output is unlikely to drop sharply in the near term, Wang projects. As a result, domestic steel inventories are expected to keep mounting during this month, rising by some 1 million tonnes, he estimates.

Meanwhile, falling prices of steel products had pushed more steelmakers into losses last month, especially as higher coke and coking coal prices lifted the steelmaking costs, Mysteel's survey showed.

Among the 247 BF steel producers Mysteel tracks, only around 51% – 126 mills – could make some profits on selling their steel products by June 25, significantly lower by 11 percentage points from a month earlier.

The thinning profit margins will likely press steelmakers to cut their purchase prices for raw materials such as iron ore and coking coal further, which will cause the cost support for steel prices to waver, Wang pointed out.

In fact, domestic coking coal prices have shown signs of softening towards the end of June, with Mysteel Coking Coal Index falling Yuan 4.9/t on week to Yuan 1,712/t including the 13% VAT after a 26% surge in just over a month.

Apart from the weaker fundamentals in China, rising trade barriers are set to further suppress overseas demand for Chinese steel, Wang stressed, pointing to the ongoing Middle East conflicts and tightened global financial liquidity.

These factors are likely to temper China's steel exports in coming months, which will add further to the excess steel supply nationwide, he predicts.

During January-May this year, China's total exports of finished steel had dropped by a large 8.1% from the same period last year to 44.6 million tonnes, as Mysteel Global reported.

Source:Mysteel Global