China's steel prices to strengthen in August

China's steel prices are expected to maintain upward momentum in August, building on last month's gains, due mainly to the high costs of raw materials. This is according to the most recent survey of the steel sector's health conducted by the National Development and Reform Commission (NDRC) released on August 7, which covered major wholesale steel markets in South China, Shanghai, and Tianjin.

The NDRC says that domestic steel prices should rise, albeit modestly, this month, as the commission's latest survey results showed a noticeable improvement in market sentiment compared to July.

Continuously rising prices of raw materials – particularly metallurgical coke – will still bolster steel prices, though the impetus for them to climb is set to weaken as the traditional demand lull is still plaguing the market, the survey results suggest.

The survey assessed six key indices, with both the Sales Price Expectation Index and the Purchase Price Expectation Index for August exceeding the 50% threshold, indicating a significant improvement in domestic steel market sentiment.

The Sales Price Expectation Index for August has jumped to 56.2%, higher by a remarkable 31 percentage points from July, and the Purchase Price Expectation Index has also surged by 30.4 percentage points on month to around 59.4%.

The survey showed that the steel market will see a slight pickup in end-user demand this month, which in the meantime will help to slow stock accumulation. This is reflected in the NDRC's Sales Volume Expectation Index for this month which has increased to 54.7%, up by 17.9 percentage points from July. Meanwhile, the Inventory Expectation Index dipped to 55.8%, a drop of 2.7 percentage points from the previous month.

On the other hand, the wholesale market has been facing increasing pressure from sales costs, while any rises in sales prices are expected to be insignificant. Consequently, profit margins from sales are expected to shrink, according to the survey results.

Correspondingly, the Sales Cost Expectation Index rose to 68.3%, up 27.9 percentage points on month. However, the Sales Profit Margin Expectation Index stayed below the 50% threshold, despite an on-month increase of 6.7 percentage points.

Source:Mysteel Global