Several Chinese steelmakers recently cut prices amid weaker-than-expected demand and analysts estimate that steel demand will remain sluggish in coming months.
On Monday, seven Chinese steelmakers cut prices of construction steel products by 10 – 600 yuan per tonne, with Jiangsu Shagang Group slashing prices of high-speed steel, coiled reinforced bars and construction steel rebars by 600 yuan per tonne, according to consultancy Mysteel.
Steel futures tumbled further this week. The most-traded steel rebar futures contract on the Shanghai Futures Exchange, for January delivery, plunged by the daily limit of 8 per cent on Tuesday to hit 4,230 yuan per tonne at one point and the most-traded hot-rolled coil futures contract on the Shanghai bourse also hit limit-down, diving 8 per cent to hit 4,531 yuan per tonne.
Futures of steel-making ingredient also tumbled, with the most-traded iron ore futures contract on the Dalian Commodity Exchange, for January delivery tumbled by the daily limit of 10 per cent to 565.5 yuan per tonne, dropping below 600 yuan per tonne mark for the first time May 2020.
“The plunge in steel futures was partly due to increasing downward pressure on the economic growth, which dampens expectation for steel demand in coming months. Apparent demand for steel rebars in the recent three weeks fell by 27 per cent, 30 per cent and 31 per cent, respectively, compared to a year earlier,” said Qiu Yuecheng, ferrous metal research director at Everbright Futures.
“The sell-off in thermal coal futures continues this week amid the crackdown on the coal market, which also dampened investors’ sentiment on other ferrous commodities,” said Qiu.
Steel futures have been tumbling since mid-October to levels close to those in mid-May, he said.
Going forward, it is unlikely to see a notably pickup in steel demand in November, he said. “Manufacturing PMI remained in contractionary territory for the second straight month in October and the market is not optimistic about the outlook.”
While the sell-off in steel market was initially triggered by the panic after the authority launched a crackdown on the coal market, the supply and demand fundamentals in the steel market has also contributed to the downtrend.
Due to the national campaign to cut steel production, output contracted significantly in September, reducing steel supply and supporting steel prices. However, due to productions cut in the past few months, it’s already not difficult to achieve the target of maintaining crude steel output no higher than last year, prompting market expectation that the restrictions on steel production in the rest of the year will be slightly relaxed, said Tu Weihua, ferrous commodity analyst at Baocheng Futures.
“The focus in the steel market has shifted from production side to the supply side. High-frequency data shows steel demand has been falling and China recently announced property tax pilot dampens expectations for steel demand,” said Tu.
Average daily output of melted iron and average consumption of imported iron ore has been declining and as national policy for production restrictions hasn’t change, iron ore consumption is expected to remain tight and steelmakers will be reluctant to conduct restocking, said Tu.
Meanwhile, while iron ore arrivals at Chinese ports have dropped, shipments for iron ore producers are rebounding and iron ore inventories at Chinese ports remained high.
Real estate investment contracted significantly amid slowing property sales, new construction starts and land acquisitions, while infrastructure investment growth has been slowing too, construction steel demand in October was waker than expected, said Wang Guoqing, analyst at consultancy Lange Steel.
Average daily transaction in Beijing’s building material market was 6,763 tonnes in October, falling by 2,582 tonnes from September and down by 3,262 tonnes from the same period last year, according to a survey conducted by Lange Steel.
Meanwhile, output of many steel-consuming products have been declining, also weakening demand for steel plates, he said.
Meanwhile, some steelmakers in Jiangsu, Guangdong and Guangxi provinces have resumed production, leading to market expectation of some relaxation in steel production, said Wang. According to data from Lange Steel, operating rate of blast furnace in China’s major steel mills stood at 76.6 per cent on October 22, up by 0.8 percentage points from a low on October 9.
Into November, as North China enters winter season and demand for construction materials is expected to decline gradually and on the supply side, steel output will continued to be restricted amid China’s production curbs, leaving a weakness in both demand and supply fronts, said Wang.