China's steel output remains strong; downstream outlook still dim

China's steel production remained on an uptrend in June and was still not showing any signs of slowing down as of mid-July, data from the National Bureau of Statistics showed July 15, a trend that remains solid despite weak demand in the construction sector.

Although the broader steel market was expecting more economic stimulus to be announced during China's Third Plenum, some market participants said any stimulus was unlikely to be aggressive.

As a result, China's domestic steel prices might continue to fluctuate at lower levels, amid subdued steel demand and relatively strong steel production, the market participants said July 15.

Production

China's pig iron production in June was still 3.3% lower on the year at 74.49 million mt, but the crude steel output was 0.2% higher on the year at 91.61 million mt in June, the NBS data showed.

Daily pig iron and crude steel output in June both increased, by 1.1% and 1.9% on the month to 2.483 million mt and 3.054 million mt, respectively. The daily pig iron output in June was the highest since July 2023, with the daily crude steel output being the highest since April 2023.

In the first half of 2024, China's pig iron and crude steel output fell by 3.6% and 1.1% on the year to 435.62 million mt and 530.57 million mt, NBS data showed.

According to China Iron & Steel Association, China's daily pig iron and crude steel production over July 1-10 declined just 0.5% and 0.6% from late June.

The relatively strong steel production, coupled with slow steel demand, drove the rebar and hot rolled coil inventories at major spot markets monitored by CISA to 4.68 million mt and 2.37 million mt as of July 10, up 10.9% and 15.1% from the same period of 2023.

"Steel mills at the moment have no intention to reduce steel production, partly as there are still thin margins, and partly due to anticipations of more stimulus policies coming from the Third Plenum to support the property and infrastructure sectors," said a mill source.

China's Third Plenum, the Communist Party's top decision-making conference, is expected to announce the country's major policies for the year ahead and beyond on July 18 after the conference is closed.

Property and infrastructure

However, some market sources believed any policy easing would have limited boost to the steel demand.

"China's property has already been on a structural downturn, so any further measures to the sector may mainly aim at preventing systemic risks in banks, rather than encouraging building more homes," said a trade source.

More fiscal stimulus is expected to be announced after the Third Plenum. "But I don't think further fiscal stimulus can generate much incremental steel demand, as part of the fiscal stimulus probably would be used to pay down local governments existing debts, or offset the adverse impact from falling land purchases on local governments' fiscal revenues," said another trader.

The property sector may continue downwards along with its steel demand in 2024, while the growth of infrastructure construction may also continue to be constrained by a lack of local government funding, according to market sources.

According to data released by NBS also on June 17, the floor space of China's new home sales over January-June, a major source of funding for developers' ongoing and new projects, fell by 19% on the year, slightly lower than a 20.3% year-on-year decline over January-May.

The new home sales over the first half of 2024 were 45.9% lower than in the same period of 2021, when China's property sector reached its peak.

In tandem, China's new home construction starts, the key steel demand driver in China, fell by 23.7% on the year over January-June, and 62.5% lower than in the same period of 2021.

Over the first half of 2024, China's infrastructure investments increased by 5.4% on the year, slowing from a 5.7% year-on-year growth in January-May, and from a 6% year-on-year growth in January-April, according to data of NBS.