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MYSTEEL: China’s steel prices face growing pressure

Chinese domestic steel prices are likely to face more downward pressure this month amid widespread pessimism around the world due to the rampant spread of COVID-19, according to Wang Jianhua, Mysteel’s senior analyst.

The daily avalanche of bad news from abroad reaching China is creating bearish sentiment across many industrial sectors including steel and whose depressing heaviness outweighs any internal factor that may prop up steel markets, Wang suggests in his outlook posted on March 31. “All categories of steel products have room to decline, though the pace or time of the decline may vary,” he warned.

Throughout March, Mysteel’s national HRB400 20mm dia rebar benchmark price declined by a total of Yuan 18/tonne ($2.5/t) to Yuan 3,611/t as of March 31 and that of 4.75mm hot-rolled coil slipped Yuan 75/t throughout the month to Yuan 3,446/t.

The national benchmark price of 1.0mm cold-rolled coil, moreover, slumped Yuan 227/t over the period to Yuan 4,034/t as of March 31, according to Mysteel’s data tracker. All prices include the 13% VAT.  

Overwhelming concerns of economic recession amid COVID-19 threat

Though China has helped to tame the fatal virus disease at home through the adoption of tough measures, elsewhere in the world there is no clear sign of improving conditions. This has triggered widespread and severe concerns that the global economy is falling into recession, or worse, according to Wang.

A market source in Shanghai agreed. “The previous optimism of a domestic demand recovery is now completely replaced with the pessimism over wider economic slowdowns,” he admitted.

Many global financial institutions have already reached a consensus that a global economic recession looms, with some media saying that the shock of COVID-19 on global business could be more damaging than the 2008 global financial crisis and even the Great Depression of 1929-32.

International Monetary Fund chief Kristalina Georgie candidly acknowledged on March 27 that the global economy is now in a recession thanks to the COVID-19. “The length and depth of this recession depends on two things: Containing the virus and having an effective, coordinated response to the crisis,” she added.

As of April 1, confirmed COVID-19 cases totalled 754,948 across 203 countries worldwide while the death toll had reached 36,571, according to a real-time tally of the World Health Organization.

COVID-19 slows down China's direct and indirect steel exports

Overseas demand for Chinese steel products is forecast to slump due to the continuing battle against COVID-19, Wang noted. Steel exports have already shown signs of decline since late March due to the “closure of overseas processing centres,” he said.

A steel exporter based in Shanghai was more direct, saying bluntly that the market had been “very very quiet” recently.  “My clients in South Africa, Indonesia and Singapore are all super-quiet. I’ve had no order and even no inquiry at all,” she said.

The new export order index for China’s steel industry was only 27.3 in March, down 15.2 on month and at the lowest since the end of 2008, according to statistics compiled by CFLP Steel Logistics Professional Committee (CSLPC).

Indirect exports of steel products – steel contained in end products such as autos or white goods and shipped abroad – are expected to be affected too, according to Wang.

“Some April export orders on such products have already been cancelled and new orders have declined significantly, which in turn will reduce steel consumption in the domestic manufacturing industry,” Wang said.

Mysteel estimated that China’s direct and indirect steel exports could be reduced by as much as 4.6 million tonnes in April and 10.3 million tonnes this year overall due to the COVID-19, as reported.

Domestic steel demand may recover more slowly than expected

Moreover, domestic steel demand has not been growing as fast as many had expected, lending no sustained support to any price gain, Wang noted.

“Domestic demand has been delayed for a rather long time (due to China’s measures to contain COVID-19), but supply remains at a high level. High (steel) inventories at both steel trading houses and downstream users such as manufacturers or construction sites need time to be digested, which will affect the consumption of newly-arrived steel products,” he pointed out.

As of March 26, China’s stocks of five major steel items held by traders in 35 cities nationwide topped 24.3 million tonnes, decreasing for a second week and thinning by another 1.1 million tonnes or some 4.2% on week, but it was still 5.6 million tonnes or 30% more than the highest point last year, according to Mysteel's data tracker.

In March, the daily trading of construction steel including rebar, wire rod and bar-in-coil among participants in spot markets nationwide averaged 169,313 tonnes/day, lower by 23,524 t/d or 12.1% on year, according to Mysteel’s survey across 237 Chinese traders.

Rebound in steel production restraining steel price growth

In April, higher steel supply is now a foregone conclusion, which will impose new pressures on inventory depletion and price increases, Wang maintained.

Since middle and late March, steel supply has been climbing fast thanks to the decline in steel scrap prices against rather firm rebar prices, according to Wang. This is coupled with the return to production of facilities that were previously put on maintenance.

At the end of February, weekly output of the five major carbon steel items among more than 300 producers of flat and long steel products nationwide regularly canvassed by Mysteel totalled 8.57 million tonnes. However, just one month later, the figure had increased to 9.14 million tonnes.

Written by Olivia Zhang, zhangwd@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com