China is likely to
announce a 20 million-30 million mt, or 2-3% year on year, decline in its steel
output cut target for 2022 in July, according to industry sources.
The steel output
cuts at this level may not provide much upside momentum to the Chinese steel
market, as annual steel demand, undermined by debt-strapped property sector,
may drop even faster.
Some sources expect
Chinese steel prices to continue to fluctuate in the second half of the year
but in a narrower range than in H1.
China’s annual steel
demand in 2022 would drop at least 5% on the year, which means in order to
lower steel inventories and give a real boost to steel prices, China has to
reduce its annual crude steel output by around 50 million mt on year, some
sources said.
“But it is
impossible for China to target anywhere near 50 million mt of annual crude
steel output cuts, as that will trigger unemployment and put great downward
pressure on GDP growth,” a source said.
If China sets to
reduce its crude steel output in 2022 by 20 million mt to 30 million mt on
year, its annual crude steel output will decline to around 1.005 million mt to
1.015 million mt. That means the average daily crude steel output during
June-December will be around 2.665 million mt to 2.711 million mt, down 13% to
14.5% from May’s daily level, but still 1.4% to 3.2% higher than in the same
period of 2021.
Some market sources
said China’s crude steel output already retreated in June, and the decline in
steel output will accelerate in July, as currently most steel mills are already
in lossmaking and steel inventories at both mills and spot market are high.
Steel output cuts in
July will stop steel prices from falling further or even trigger some upward
corrections, but they will remain too modest to really reverse the downward
trend due to poor steel demand, according to the sources.
Steel demand in
manufacturing and infrastructure sector has gradually improved since June, but
the slowdown in property-related steel demand has been too steep and is also
unlikely to improve at least in the third quarter.
China’s property
sector, the most important steel demand driver in China, may see its home sales
and investment bottom out in the third quarter, according to some market
observers.
However, even if new
home sales begin to increase on a yearly basis in the fourth quarter,
developers will divert most of the money on securing project completions rather
than launching new home starts, which will benefit commodities like glass or
copper but not steel.