CISA: Oversupply to keep Chinese steel prices in check
Despite the uptick in domestic demand that usually occurs in April at the start of spring, steel prices in China will not increase markedly over the near term given the rapid jump in steel output and the consequent threat of oversupply.
That’s the prediction of the China Iron & Steel Association (CISA) in its latest release, issued on May 15, which noted that domestic steel output saw a remarkable rise last month as producers responded to the recovery in demand during the traditional peak season. The country’s average daily crude steel output surged by 7.1% or 170,300 tonnes from March to hit a record high of 2.56 million tonnes/day in April, National Bureau of Statistics data showed.
Steel demand, at the same time, recovered gradually in April, with steel inventories among traders nationwide declining for a sixth consecutive week to 12.71 million tonnes as of May 11, CISA data showed. This was 5.28 million tonnes or 29.5% lower on month.
The lift in demand and the dip in stocks led steel prices to start climbing, the association noted. Among the eight major steel products that CISA tracks, prices of wire rod and rebar posted the steepest increases, jumping by Yuan 265/tonne ($41.6/t) and Yuan 207/tonne respectively on month.
However, though traders dipped into inventory to meet the recent spurt in inquiries, CISA data suggests that compared with earlier this year, traders’ yards are still awash with steel. At mid-May steel stocks among traders were nearly two-thirds up on January levels – some 4.77 million tonnes higher – and up by 12% or 1.37 million tonnes year on year. Steel stocks remaining at such a high level may put some pressure on steel prices in the coming term, the association pointed out.
CISA warned that prices of the core raw materials for steelmaking, including iron ore and steel scrap, are also hovering at high levels. It noted that the China Iron Ore Price Index (CIOPI) for 62% fines rose by $1.54/t or 2.4% on month in April and that the price of domestic steel scrap moved up Yuan 116/t or 5.3% on month as of the end of April.
The jump in steelmaking raw materials prices limits scope for further rises, CISA noted, but added that this plateauing of raw mats prices removes any support for big gains in steel prices too.
Nor are the Chinese mills seen exporting their way over their present domestic hump. CISA regards the worsening trade friction between the United States and China as an obstacle for Chinese steel exports, which shrank 20.1% or 5.4 million tonnes on year to 21.6 million tonnes in this year’s first four months, suggesting Chinese steel exports are under great pressure, it noted.
Written by Nancy Zheng, zhengmm@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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