Flat steel faces pressure in May amid seasonal demand slowdowns

In May, China's flat steel market is expected to face increased pressure as seasonal demand slows while supply remains elevated. Production stayed high through April, and with steel margins still favorable at Yuan 140150/tonne, mills show little inclination to cut output. Hot-rolled coil (HRC) continues to offer better profits than rebar, reducing the likelihood of production shift. Weekly HRC output is projected to remain around 6.2 million tonnes in May.

On the demand side, seasonal domestic weakness is being compounded by export challenges. Tariff-related disruptions are notably impacting cold-rolled coil exports, raising inventory risks for HRC moving forward. Export orders from mills declined in April and have not rebounded in May. Furthermore, new port tax regulations in northern China, effective May 1, could add further strain. Overall, total demand is projected to decline by 500,000–600,000 tonnes on-month.

Despite weakening fundamentals, market expectations for macro policy support have risen, with hopes for interest rate cuts and consumption stimulus. Since last year's consumption growth was mainly driven by exports, if the trade surplus does not narrow quickly, policy stimulus could be delayed. However, in the context of ongoing trade tensions, domestic demand is expected to play a larger role. While manufacturing lacks strong new orders, restocking activity continues on the back of slightly improved liquidity. Apparent consumption of HRC in April is estimated to have declined by 2.3 on-month, with May expected to see a smaller drop of 1.8%, indicating that the fundamentals are unlikely to deteriorate rapidly in the short term. Still, the persistent supply-demand imbalance and slow capital in place pose key risks to near-term market sentiment.

Written by Cathy Zhao, zhaoshuzhen@mysteel.com

Edited by Hannah Yang, yangqi@mysteel.com

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