After rising steadily for nearly a month, Chinese steel prices began heading south in mid-May and are expected to remain under downward pressure in June, weighed by a mismatch between domestic steel supply and demand, Mysteel's chief analyst Wang Jianhua predicts in his latest monthly outlook.
China's national composite steel price climbed to its highest level since last July at Yuan 3,612/tonne (533.9/t) including the 13% VAT on May 12 before retreating quickly to Yuan 3,538/t as of May 29, according to Mysteel's assessment.
Entering June, the main pressure on the country's steel prices stems from ample supply from mills, against a seasonal lull in downstream steel consumption, Wang stressed. "Steelmakers maintained active production in May, and they are unlikely to rein in output soon as most mills are still enjoying positive profit margins," he explained.
The total daily production of hot metal among the 247 blast furnace (BF) steelmakers under Mysteel's weekly tracking nationwide hovered at a nearly eight-month high of 2.41 million tonnes/day by the end of May, up 0.9% from a month earlier. At the same time, more than 62% of these 247 steelmakers – around 154 mills – could make profits on selling their products, up from the ratio of 51% one month before, Mysteel's survey showed.
On the other hand, domestic demand for steel products, especially for construction materials, is expected to weaken in June due to the looming summer lull for steel consumption in the country, Wang warned. "The rising daytime temperature and the increasing rainfalls across many regions of China will evidently disrupt the work of building contractors," he pointed out.
In fact, construction activity has already shown signs of weakening in May, as the total volume of rebar, wire rod and bar-in-coil traded among the 237 trading houses under Mysteel's tracking averaged only 97,920 t/d during the month, lower by 11.3% compared with the daily transaction in April.
Meanwhile, steel demand from the manufacturing sector is expected to remain resilient, supported by steady consumption of steel flats from industries such as automobiles and shipbuilding, as well as export orders. However, overall growth momentum may be slowing due to a potential decline in the consumption of finished products, Wang added.
In May, China's Purchasing Managers' Index (PMI) for the manufacturing sector slipped 0.3 point on month to sit at 50, with the sub-index of new orders falling 0.7 point to 49.9, as Mysteel Global reported.
With the supply-demand gap widening, steel inventory destocking is likely to stall in the coming weeks and could even reverse into accumulation later this month, adding downward pressure on domestic steel prices, according to Wang.
By the end of May, 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 fallen for 11 straight weeks to 15.4 million tonnes, but the volume was still 13.1% higher on year.
Apart from the weaker market fundamentals, the tightening of economic liquidity is expected to restrain steel demand, thereby weighing on steel prices, Wang noted. By the end of last month, China had issued approximately Yuan 1.49 trillion of special-purpose bonds year-to-date, which was about Yuan 138.5 billion less than the amount issued during the same period last year, according to the latest data released by the country's National Bureau of Statistics.
Another factor impacting the domestic steel market this month is the aftermath of the severe, deadly gas explosion at the Liushenyu Coal Mine in Shanxi's Qinyuan county on May 22. The tragedy has triggered widespread mine suspensions in Shanxi and other major coal-producing regions, fueling concerns over coal supply and unsettling sentiment across the ferrous market, as reported.
While rising coking coal and coke prices may offer some cost support, steel prices are unlikely to sustain an upward trend without actual improvement in underlying supply-demand fundamentals, Wang pointed out.
Source:Mysteel Global
