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Pessimism to haunt China’s steel market in April

After falling significantly during March, China’s domestic steel prices are likely to keep heading south this month, unless the fundamentals of the steel market usher in a strong and sustained recovery, Wang Jianhua, Mysteel’s chief analyst, predicts in his latest monthly outlook.

As of March 29, China’s national composite steel price was assessed by Mysteel at Yuan 3,871.97/tonne ($544.9/t), down by Yuan 296.36/t or 7.1% on month and making for the lowest level since early July 2020.  

China steel price

Prevailing pessimism in the ferrous markets placed heavy pressure on domestic steel prices last month, Wang noted, warning that the dim mood may continue to haunt the market in coming weeks.

Wang remarked that sentiment indicators for various steel products have generally hovered around their lowest level for the same period in recent few years. For example, China’s composite sentiment index for construction steel stood at 35.18 during March 22-29, while at end-March last year it was 62.86, according to Mysteel assessment.

Sentiment Indicators for Chinese major steel products by end-March

 Construction steelHot-rolled coilCold-rolled coilMedium plate

“The slack trading activity of construction steel is directly responsible for the lack of confidence among market participants,” he explained, adding that this reflected the weak demand for steel from domestic building projects.

Mysteel’s survey showed that on March 29, the daily trading volume of construction steel comprising rebar, wire rod and bar-in-coil among the 237 sampled Chinese trading houses was 122,236 tonnes, lower by a large 21.8% on year.

Meanwhile, by the end of last month, total inventories of the five major carbon steel products – rebar, wire rod, hot-rolled coil, cold-rolled coil, and medium plate – held by the 183 steelmakers nationwide and at trading houses in the 35 Chinese cities Mysteel checks totalled 23.4 million tonnes. This was higher by some 2.7 million tonnes or 13.3% compared with the same period last year, even though the stocks had reached a peak and had started to decline late last month, according to Mysteel’s tracking.

China steel inventories

“Market players were quite pessimism already, and the increase in inventories only intensified their bearish sentiment,” Wang commented. “The main cause for the stock accumulation was that steelmakers did not constrain their production, even though they had seen demand weaken,” he added.

“If the steel mills continue to maintain production and think they might have the luck to earn profits at some point, the mismatch between the supply and demand will lead domestic steel prices to keep sliding for the foreseeable future,” Wang warned. “Only when steel output is effectively scaled back can prices touch bottom and rebound,” he stressed.

In fact, the China Iron & Steel Association (CISA) has also called on domestic steelmakers to reduce their production intensity amid the slow recovery of steel demand, as reported.

Steel demand is expected to pick up in April with economic activity in various fields increasing, though the growth may be limited, Wang noted. If steel production retreats, steel inventories will decrease at a faster pace this month, which is likely to brighten the market mood before month’s end and lend stronger support to steel prices, he predicts.

Written by Anthea Shi