China's latest lending rate cuts fail to boost steel markets

China on July 22 cut the benchmark lending rate, known as the loan prime rate (LPR), for the second time this year, but this failed to boost steel market sentiment at a time when domestic steel demand has been weakening further in July.

Amid poor demand sentiment and weak spot market transaction, China's domestic rebar and hot-rolled coil prices assessed by Platts, part of S&P Global Commodity Insights, fell to Yuan 3,440/mt ($473/mt) and Yuan 3,590/mt July 22, down Yuan 30/mt and Yuan 20/mt respectively on the day.

Current rebar and HRC prices were Yuan 330/mt and Yuan 310/mt lower than in early May when steel prices resumed their downward trend.

As weak steel demand persists, steel markets may only see stability when Chinese steelmakers start reducing production, mill and trading sources said July 22.

Falling demand

China's apparent domestic steel consumption in June was around 82.98 million mt, down 3.7% on the year, according to Commodity Insights' calculations based on various government and agency data. Apparent daily steel consumption in June fell by 3.6% from May's level.

Apparent domestic steel consumption in the first half of 2024 fell to 472.79 million mt, down 3.8% on the year and 13.2% lower from the same period of 2021, when China's property sector peaked.

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

Some mill sources said end-user demand fell further in July, partly due to low season factors, and partly as the drag from China's property sector continued to pressure the demand side.

"Mills' profit margins in general have deteriorated in July, but so far the losses have not been enough to trigger large-scale steel output cuts," said a mill source.

The average utilization at China's blast furnaces over July 15-19 was up by one percentage point from a week ago at 89.6%, but still about 1.5 percentage points lower than a year ago, according to market sources.

However, some other mill and trading sources said that due to a lack of strong stimulus to the property, infrastructure and consumer spending sectors, steel demand was expected to remain depressed in the foreseeable future, which might continue to weaken steel prices until mills start to cut production.

Strong exports

In contrast to the subdued domestic market, China's net exports of semi-finished and finished steel in June were 19.4% higher on the year at 8.364 million mt, although down 9.1% on the month due to a high base factor, China Customs data showed July 22.

In the first half of 2024, net exports of semi-finished and finished steel increased 25.7%, or 10.227 million mt, on the year to 50.021 million mt.

"China's steel exports may remain strong in the rest of 2024, but are unlikely to surpass the peak seen in March at 9.888 million mt, meaning the overseas market is unlikely to generate further demand growth," said a trader.

In tandem with weakening domestic steel prices and currently tepid overseas demand, the export prices of SS400 HRC of 3 mm thickness fell to $496/mt FOB China on July 22, down $4/mt on the day and $44/mt from May 24, Commodity Insights data showed.