SHANGHAI, Jun 20 - In May, China's economy recovery presented solid momentum. The domestic market demand for steel, although recovered to some extent, was still less than expected. Affected by the falling prices of raw materials, steel prices also declined. Steel prices have fluctuated slightly after entering June.
I. Domestic steel prices reversed the upward trended and started to fall
SHANGHAI, Jun 20 - According to China Iron and Steel Association, at the end of May, the China Steel Price Index (CSPI) was 133.19, down 6.83 points or 4.88% month-on-month, and down 10.88 points or 7.55% year-on-year.
Long steel and steel plate prices both dropped
At the end of May, the CSPI index for long steel stood at 138.07, down 7.91 points or 5.42% MoM; the index for steel plate was 131.80, down 5.54 points or 4.03% MoM. Compared with the same period last year, the indexes for long steel and steel plate fell by 9.58 points and 11.48 points respectively, or 6.49% and 8.01% respectively.
II. China steel market review
In May, steel output continued to grow from a year earlier. With the production resumption in Jilin, Shanghai and other serious areas, that were hit hard by the pandemic, as well as the introduction of policies to stabilise the economy, steel prices have been pressured and dropped accordingly, coupled with rising steel output and falling raw material prices.
(1) Demand from major downstream sectors fell short of expectation
According to the National Bureau of Statistics, from January to May, national investment in fixed assets (excluding rural households) grew by 6.2% year-on-year, a drop of 0.6 percentage point from the growth rate in January to April. Among them, manufacturing investment grew by 10.6%, down 1.6 percentage points from the period of January-April. Investment in infrastructure grew by 6.7% year-on-year, an increase of 0.2 percentage point from January to April.
Domestic real estate development investment fell by 4.0% year-on-year, an increase of 1.3 percentage points compared to January-April. The floor area of new housing starts fell 30.6%, an increase of 4.3 percentage points compared with the drop in January-April.
In May, the value added of industries above national scale increased by 0.7% year-on-year, turning from negative growth to positive on a year-on-year basis.
On the whole, the economic stabilization-oriented policies have not yet pulled up the demand side, and the overall performance of downstream industries in terms of steel consumption has been lower than expected.
(2) Daily crude steel output rose MoM
According to the National Bureau of Statistics, in May, the national pig iron, crude steel and steel production were 80.49 million mt, 96.61 million mt and 122.61 million mt, up 2.0%, and down 3.5% and 2.3% respectively YoY. Among them, crude steel production increased by 3.83 million mt MoM; daily crude steel production was 3,116,500 mt, an increase of 0.8% MoM.
(3) Raw material and energy prices dropped MoM
At the end of May, CIOPI (China Iron Ore Price Index) imported ore prices were down $5.28/mt, and domestic iron ore concentrate prices fell 67 yuan/mt. Coking coal prices dropped 600 yuan/mt, and metallurgical coke prices declined 733/ yuan/mt. Steel scrap prices also contracted 150 yuan/mt. Although the prices of raw materials and energy dropped, they were still at a high level.
III. Market prospect
Downstream demand for steel is likely to ramp up with the introduction of stimulus policies as well as the improvement of COVID situation.
(1) Steel demand recovery to accelerate with the introduction of stimulus policies
Since this year, the international situation has been complicated and the downward pressure on the world economy has increased. According to the World Bank's Global Economic Prospects released on June 7, global economic growth is forecast to fall to 2.9% in 2022, far lower than the 4.1% expected in January this year.
In China, in the face of the complex international environment and great downward pressure in China brought about by the COVID outbreak, China has introduced a package of policy measures to stabilise the economy, apart from the original goal of stabilise economic growth, especially the investment and consumption promotion. Steel demand is expected to recover at a faster pace.
(2) Steel output rose MoM, and was still below the level last year
Since this year, due to the impact of weak demand, the monthly crude steel production in each of the first five months, although managed to grow MoM, are lower than the level of the same period last year. The combined crude steel production stood at 435 million mt in January-May, down 8.7% YoY.
According to China Iron and Steel Association, in early June, the daily crude steel production of key surveyed enterprises was 2.29 million mt, down 1.32% from the previous year. Accordingly, the estimated national daily production of crude steel 3.13 million mt, still lower than the daily production level of 3.21 in May, 2021. Nonetheless, with the demand released more quickly, the supply and demand are expected to remain balanced.
(3) Social inventory rallied slightly, but in-plant inventory dropped
In terms of social inventory, as of early June, the inventory of five major varieties of steel across 21 cities stood at 12.38 million mt, an increase of 310,000 mt or 2.6% than the end of May, which is the first growth after nine consecutive declines. The social inventory rose 1.38 million mt or 12.5% YoY.
With regard to in-plant inventory, as of early June, in-plant inventories of key steel mills stood at 18.54 million mt, 200,000 mt or 1.1% lower than at the end of May. The inventory recorded an increase of 4.32 million mt or 30.3% YoY. The logistics restrictions caused by the pandemic prevention and control measures have gradually been lifted. With local market demand taking the lead in recovering, the in-plant inventory of enterprises may further decline.
