Q3 Galvanizing Operating Rates Fall Short of Expectations, Will Q4 See Improvement? [SMM Analysis]

Overall consumption performance in Q3 was relatively poor, with a sluggish off-season and underperformance in the peak season. Galvanizing operating rates also hit a record low YoY. Will consumption improve in Q4?

From the perspective of SMM's monthly operating rates, the operating rate for galvanizing in Q3 continued to decline compared to Q2. This was mainly because, starting from Q3, downstream consumption entered the off-season. High temperatures, typhoons, and heavy rainfall triggered floods, with frequent extreme weather restricting outdoor construction. Additionally, as real estate and infrastructure projects had not yet recovered, and ferrous metals prices in the steel industry continued to decline after an unexpected surge in July due to "anti-involution," traders avoided large-scale stockpiling. Sales of galvanized pipes were hindered, and enterprises refrained from excessive stockpiling to avoid risks, causing operating rates to continue fluctuating at lows. Entering September, downstream consumption moved into the seasonal peak season, the impact of extreme weather gradually weakened, and project construction resumed. Orders related to steel towers, PV, and transportation showed improvement. However, overall policies supporting real estate and infrastructure this year were limited. Although the overall operating rate recovered in September, it remained weaker than the same period last year.

Looking ahead to Q4, October saw continuous rainfall in north China, which restricted overall construction activities in the region and hampered sales. Ferrous metal prices remained volatile, with downstream traders making purchases based on immediate needs, and no significant improvement was observed in enterprise orders. Starting in November, the heating season began in north China, potentially leading to frequent polluted weather that could affect operating rates. In terms of policy, during the "16th Five-Year Plan" period, China is expected to construct or renovate over 700,000 kilometers of underground pipelines. However, it will take time for these policies to translate into end-user demand. Overall, the ferrous metals market is expected to remain relatively weak, though pre-Chinese New Year rush to meet deadlines may lead to a slight postponement of demand. The operating rate in Q4 is projected to be better than in Q3 but weaker than the same period last year.