Chinese steel prices are expected to continue tracking lower in the coming month as demand in both domestic and overseas markets will likely remain subdued, Mysteel's chief analyst Wang Jianhua predicts in his latest monthly.
Major steel prices fluctuated and moved downward overall in July, with the national composite steel price under Mysteel's assessment averaging about Yuan 3,438/tonne ($509/t) including the 13% VAT, lower by 1.9% compared with the average price in June.
Lukewarm demand in the traditional summer lull for China's construction sector placed major downward pressure on domestic steel prices in this past month, as the heavy rains and high daytime temperature frequently disrupted building activities in many regions across the country, Wang noted.
Entering August, while rainfall is expected to ease, persistent scorching heat will continue to limit building contractors' working hours, Wang cautioned. At the same time, tight cash flow will also keep new building projects on hold, he added.
Mysteel's latest survey showed that as of July 28, the funds availability rate at domestic construction sites had fallen for five weeks straight to 54.65%, lower by 0.36 percentage point from a month earlier.
In contrast, steel demand from the manufacturing sector remained resilient in recent months, partly supported by sustained strong exports, Wang noted.
China exported 10.32 million tonnes of finished steel in June, higher by 6.6% on year, though the volume was slightly lower by 0.2% on month, as Mysteel Global reported.
However, overseas buyers are expected to show less enthusiasm for Chinese steel exports in August, Wang warned.
"Demand from the European market is expected to see a seasonal summer holiday slowdown, while the rainy season in Southeast Asia is weighing on local production activity," Wang explained. "On top of that, fresh anti-dumping measures and increasingly stringent tariffs targeting Chinese products are set to further restrict China's steel exports," he added.
With little sign of meaningful improvement in downstream demand, Chinese steel mills will need to step up efforts in reducing production so as to ease the mounting pressure on the supply side, Wang stressed.
Although steel mills have been scaling back output over the past few weeks, domestic steel supply still exceeds demand – a mismatch that is reflected in the rising steel inventories, Mysteel's survey showed.
During the week over July 24-30, the total hot metal output among the 247 BF steelmakers under Mysteel's tracking had dropped for four straight weeks to reach 2.36 million tonnes/day, lower by 3.2% from a month earlier.
As of July 30, however, 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 increased 0.8% on month to 16.4 million tonnes, significantly higher by 21% compared with end-July last year.
Supply pressure is unlikely to ease in August unless the surveyed BF mills reduce their hot metal production to no higher than 2.32 million t/d, Wang maintained.
In addition to weak fundamentals, potential declines in the prices of key steelmaking raw materials such as iron ore, coke and steel scrap will likely erode the cost support for steel prices in the coming month, Wang noted.
As of July 29, Mysteel PORTDEX 62% Australian Fines sat at Yuan 698/wmt FOT, lower by 1.7% from a month earlier, while China's national composite price for coke had fallen 1.3% on month to Yuan 1749/t, both including the 13% VAT, according to Mysteel's tracking.
Source:Mysteel Global
