Chinese steel prices to climb higher in April - Mysteel

Prices of most Chinese steel products may hit new highs for this year in April, according to Wang Jianhua, Mysteel's chief analyst. Central government policies boosting economic growth should begin taking effect, domestic steel demand should recover from COVID-19 disruptions, and inquires for Chinese steel from overseas buyers should be strong, he maintained in his monthly outlook of China's steel market.

As of March 31, China's HRB400E 20mm rebar price had already refreshed its year's high at Yuan 5,076/t ($799.4/t), according to Mysteel's assessment, while the Q235 4.75mm hot-rolled coil (HRC) price settled at Yuan 5,277/t, being just slightly lower than this year's high of Yuan 5,284/t set on March 28. All prices include the 13% VAT.

Economic pump-priming policies to benefit steel market

Earlier in March, Beijing set the country's economic growth target for this year at 5.5%, and this month will be a crucial period of time to achieve this goal, Wang maintained. The effect of the supportive policies �" already evident in the infrastructure sector �" will boost steel demand and steel market confidence this month, according to him.

On March 30, data from China Public Private Partnerships (PPP) Center of the country's Ministry of Finance (MoF) showed that 21 PPP projects were newly added into the system in February, with their investment total of Yuan 10 trillion ($1.6 billion) being higher by a huge 212% on month or 298% on year.

PPP projects form the central pillar of China's infrastructure and public works activities generally, Mysteel Global noted.

Moreover, 51 PPP projects commenced construction in February, with their total investment reaching Yuan 10.4 billion, higher by 74.4% on month or 133.8% on year, Wang said quoting MoF statistics. This score sheet shows that "the infrastructure sector is gaining vigor in supporting China's economic growth," Wang said.

However, for China's property sector, a key component in domestic steel consumption, Wang saw no clear signs of improvement, despite the government's continuous easing of controls for over half a year.

This prompted Wang to observe that Beijing must continue making efforts to ease restrictions hampering the property sector and to generate more market liquidity.

Over March 1-24, sales of new residential properties in 60 key Chinese cities declined 50% on year �" a rate much faster than the 28% slide witnessed in February. In the meantime, sales of previously owned dwellings also decreased 39% on year, a fall just as hefty as the 38% on-year drop in February, Wang quoted in his report.

Pointing out that liquidity in the country's property sector remained tight, he called for more policies to help boost property sales.

"While external capital is no longer willing to participate, accelerating the sales of their own projects has become the most important way for Chinese property developers to raise money," Wang said. Hence, he supported the continued easing of restrictions on people's property purchases and the availability of property finance.

Pressured by the eruption of the Russia-Ukraine conflict and the resurgence of COVID-19 within China, the country's economic growth was already slowed, with many domestic institutions estimating Q1 growth at 5.1% �" below Beijing's 5.5% full-year target.

This means that growth in the remaining three quarters will need to be strong in order to achieve the annual growth target. "It is already coming to April. If (we) still do not start the related work, achieving the annual target will be affected," Wang urged.

Steel demand to recover after COVID-19 is contained

Besides the support that the steel sector can expect from macro-economic policies this month, the rival in steel consumption �" which was delayed by COVID-19-incurred restrictions in March �" is expected to occur this month, according to Wang.

In March, China's apparent steel consumption was estimated at 48.6 million tonnes, down notably by 6.5 million tonnes or 11.7% on year, because the pandemic had impeded domestic steel consumption and finished steel deliveries, Mysteel's survey found.

March and April are supposed to be peak months for Chinese steel consumption, with the arrival of pleasant weather after winter's bitter cold making outdoor construction activity possible again. Therefore, Wang forecasted that after the disruptions in March, steel consumption this month will recover 3-4 million tonnes from last month.

"Though in some provinces, the restrictions (to prevent the virus spreading will) last until early or even mid-April, in some other regions such as South China's Guangdong, North China's Tangshan, East China's Jiangsu and Zhejiang, the pandemic is gradually being brought under control and the restrictions have been eased," he noted.

On the other hand, increasing demand is seen from the overseas market too, Wang observed.

"The global steel market is rebalancing its steel demand with the absence of steel supply from Russia and Ukraine, resulting in increasing demand for Chinese steel products," he said. Though the data is incomplete, Mysteel estimates that this month alone, China will export an additional 1-1.5 million tonnes of steel, according to the outlook.

On the supply side, for this month, China's domestic steel supply is expected to only recover by 3.6 million tonnes, though the restrictions on steel mills in North China were lifted after the Paralympic Games and annual political meetings in Beijing had ended in March.

The sloth of output resumption is partially a consequence of electric-arc-furnace (EAF) makers scaling-down production due to losses, according to Wang, while imports of slabs and billets from abroad are expected to be fewer too, as domestic prices are much lower than overseas prices.

High production costs to support steel prices

The surge in steel production costs and the razor-thin profits of Chinese steel mills will continue to shore up steel prices this month, Wang maintained.

At the end of March, Mysteel's survey showed that the average production cost for making rebars among EAF makers stood high at Yuan 4,917/t, which, comparing with the rebar market transaction price at Yuan 5,076/t on March 31, basically shows that the mills are making no profits.

For China's integrated steelmakers, last month, the average profits of rebar, hot-rolled coil, cold-rolled coil and medium plate were all thin at Yuan 243/t, Yuan 343/t, Yuan 211/t and Yuan 100/t respectively, according to Mysteel's calculation model.

This meant that among a total of 247 Chinese integrated steel producers under Mysteel's survey, only 74.9% were actually making money last month. "This is a rare low level in recent years," Wang noted.

Moreover, actual production costs among the Chinese mills may increase further this month as a result of the rises in iron ore, coke and energy prices in March. The singeing costs "will not only support the prices, but also push them to a higher level," he said.

"No matter which measure you use �" either domestic steel market fundamentals, the price gap between China's steel market and those abroad, or the support the industry can gain from the infrastructure sector in particular �" all these factors create room for the steel prices to grow," Wang concluded.

However, he counselled the market to stay cautious, as domestic supply may increase faster than expected, the fight against the pandemic may last longer than predicted, and overseas steel demand may be lower than forecast.

Written by Olivia Zhang, zhangwd@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.