China's steel demand expected to be weak in traditionally stronger Q2

China's overall steel demand is expected to remain subdued in a traditionally stronger second quarter, mill and trading sources said, after the country's net exports of semi-finished and finished steel hit an almost eight-year high in March even as production fell below the year-ago level.

Steel production in the second quarter might inch higher from the first quarter but could still be lower than a year earlier, likely keeping a check on iron ore prices, the sources said.

Strong exports, weak demand

China's net exports of semi-finished and finished steel in March rose 29.8% on the year to 9.447 million mt, latest data from China Customs showed. The outflows were the highest since July 2016, according to calculations by S&P Global Commodity Insights based on the customs data.

In the first quarter of 2024, net exports of semi-finished and finished steel increased 35%, or 6.161 million mt, on the year to 23.712 million mt.

Meanwhile, China's crude steel production in March fell 7.8% year on year to 88.27 million mt, taking total steel production in the first quarter to 256.55 million mt, down 1.9% on the year, National Bureau of Statistics data showed.

China's apparent domestic steel consumption in March fell 13.1% on the year to 77.93 million mt, according to S&P Global Commodity Insights' calculations. However, the apparent daily steel consumption in March rose 7.3% from the average over January-February.

The apparent domestic steel consumption in the first quarter fell 6.3% on the year to 218.81 million mt.

Apparent consumption equals to crude steel output minus net exports and increased steel inventories and reflects the amount of steel actually consumed domestically.

Iron ore

Weakness in domestic steel demand, led mainly by a slumping property sector and local governments downsizing infrastructure projects to reduce their debts, has persisted into April, leaving China's blast furnace utilization rates lower on the year and iron ore inventories soaring.

The average utilization at China's blast furnaces increased to near 85% over April 15-19, rising about two percentage points from the end of March but declining about seven percentage points from a year earlier, according to trade sources.

Along with sluggish hot metal production, iron ore port inventories have been in an uptrend so far in 2024, reaching 145.16 million mt as of April 19, rising 21.9% from the end of 2023 and 12% on the year, data from research firm CEIC showed. The current inventories were the highest since April 2022.

Some trade sources said that iron ore port inventories might decrease in late April due to a slow recovery in pig iron production and slightly lower new arrivals. But weak domestic steel demand was likely to keep the pig iron output relatively low, and thus any decline in the iron ore port inventories could be mild at least in the near term.

"The domestic steel demand is unlikely to [see] substantial improvement in the second quarter ... while the property sector remains a heavy drag. The central government's stimulus [for] infrastructure so far has been focusing more on low steel intensive sectors ... and thus has lent little support to the construction steel market," said a trading source in southern China.

Weak domestic steel demand drove the Platts 62% Fe Iron Ore Index to $98.3/dmt CFR China on April 4, down from $143.95/dry mt CFR North China on Jan. 3. The index rebounded to $116.85/dmt CFR North China on April 22. Platts is part of S&P Global Commodity Insights.