China's steel prices may trend lower; output rises further in mid-June

A recent uptrend in China's steel prices is expected to be short-lived following an upcoming national-level policy meeting in July that will decide on stimulus measures, market participants told S&P Global Commodity Insights June 26.

Steel prices in China have been rising recently despite sluggish demand, mostly on expectations that China would unveil fresh economic stimulus measures. This is also encouraging higher production, sources said.

If stimulus measures benefiting the steel-intensive industries turn out to be smaller than expected, this could weigh on Chinese steel markets, sources say.

Production continues to rise

China's daily pig iron and crude steel output rose in mid-June compared with the May average.

China's daily pig iron for June 11-20 climbed 0.6% to 2.45 million mt, while crude steel output for the same period rose 1.1% to 2.953 million mt, the latest data from China Iron & Steel Association showed.

During the first 20 days of June, the daily pig iron and crude steel output increased by 1.2% and 2.4% from the daily average in May to 2.443 million mt and 2.937 million mt, respectively.

CISA does not reveal year-on-year changes in steel production, but the daily crude steel output in June could still be around 2% below the same period of 2022, S&P Global data showed.

Finished steel inventories at mills and spot markets monitored by the CISA reached 25.78 million mt June 20, down by 22.8% from a year ago, and also 4.8% below the same period of 2021.

Sluggish demand

"Steel inventories are not high and [are] having limited pressure on [the] steel market at the moment. But if steel production continues rising into July, I'm afraid the inventories will turn upward soon, as the actual steel demand is not good, and I personally think property-related steel demand may continue falling for the rest of 2023," a trader, based in eastern China, said.

China's excavator sales in the domestic market, an important indicator that shows upcoming construction activity, continued to fall in June for the third straight month, down 16.6% on the month and about 50% lower on the year, according to a China Construction Machinery Association forecast.

"Also, there could be more extreme weather this July-August than usual due to El Nino effects, which may cause a more adverse impact on construction activity in the coming two months," a market source said.

Eyes on stimulus packages

China's Politburo, the top policy-making body, will hold a meeting in July focusing on economic work for the rest of 2023.

Market chatter indicated the Politburo meeting may introduce more monetary and fiscal measures to support the property and infrastructure sectors in the second half of 2023, in a bid to cushion slowed economic growth.

The property and infrastructure sectors are the largest steel consumers in China.

But some market sources expected any further stimulus is likely to be limited by the rapid weakening of the Yuan's exchange rate. Instead, more could be done in sectors linked to high-end manufacturing or digital economy, which are much less steel-intensive than property and infrastructure, they added.

Given market anticipation of fresh stimulus, the Chinese domestic rebar prices increased 5% from late May to Yuan 3,750/mt ($519/mt) June 16, S&P Global data showed, but as demand showed no sign of improvement in tandem with price rises, rebar prices retreated June 26 to Yuan 3,680/mt.