China's domestic prices of finished steel next
month are expected to recover from their July slump, contingent on the
implementation of supply cuts by steelmakers, according to Wang Jianhua,
Mysteel's chief analyst, in his newly published monthly outlook for August.
In
July, the domestic steel market continued its decline from June, with prices
dropping significantly in the latter half of the month. According to Mysteel's
assessment, by July 29 the national composite steel price had fallen by Yuan
206.46/tonne ($28.4/t), or 5.4% month-on-month to reaching Yuan 3,634/t, the
lowest level since April 2020.
This
decline was partly seasonal, influenced by the extreme summer heat and
persistent rainfall that hampered construction activities in many parts of the
country.
In
addition, stricter standards for rebar announced by the Chinese government on
June 25 further pressured an already sluggish steel market. Traders are rushing
to clear out their existing inventories of bars, fearing that the three-month
buffer period provided by the government would be insufficient to sell off
their soon-to-be non-compliant stocks. The inevitable plummet in rebar prices is
causing prices of all steel items to soften, as Mysteel Global has reported.
Wang
reassured that the situation is manageable, noting that the old-standard rebar
will likely be sold out within the buffer period unless traders or
steelmakers resist adjusting their selling strategies in line with market
trends.
"In
another way, pessimism isn't all bad," Wang commented. "The
significant losses among steelmakers due to falling steel prices have prompted
many to cut production, which will help alleviate the prolonged supply-side
pressure."
As
of July 25, the profit ratio among the 247 blast-furnace (BF) steel mills
tracked by Mysteel had fallen to 15.15%, making for a significant drop of 27.71
percentage points from the week of June 28 and marking the lowest percentage of
profitable mills since mid-November 2022.
In
parallel, steelmakers producing rebar with BFs reported an average loss of Yuan
418/t as of July 29, much higher than the Yuan 273/t average as of June 28,
according to Mysteel's daily tracking.
In
fact, Mysteel has learned that 19 steelmakers across the country were
voluntarily undertaking equipment maintenance to cut production between late
July and the end of August. These actions are expected to lead to an output
decline of about 40,000 tonnes/day, or a total of 1.98 million tonnes of
construction steel, including rebar, according to Mysteel's assessment.
From
July 18-24, rebar production among the 137 Chinese steel producers tracked by
Mysteel declined for the fourth consecutive week, hitting a three-month low of
2.17 million tonnes, according to Mysteel's weekly survey.
Wang
also expressed optimism about steel demand in the coming month, predicting an
improvement in August as adverse weather conditions recede.
Mysteel's
survey from July 1-26 showed that steel consumption for the five major steel
products – rebar, wire rod, hot-rolled coil, cold-rolled coil, and medium plate
– totaled 35.62 million tonnes, a slight decrease of only 0.14
million tonnes from June.
Notably,
rebar consumption reached 9.28 million tonnes as of July 26, leading to a
240,000 tonne-reduction in rebar stocks compared to June 28 in both steel
mills' and traders' warehouses.
For
flat products primarily used in the manufacturing sector, Beijing's recent
initiatives to boost large-scale equipment upgrades and trade-ins of consumer
goods, announced on July 26, could further stimulate demand for steel-made
goods, Wang noted.