MNI: Cap Seen Boosting China Steel Demand In Q3

China’s steel prices are likely to rise moderately in the third quarter as policymakers cap production at 2022 levels and local demand improves thanks to moves to boost construction and real estate, local analysts told MNI.

While European and U.S. orders have fallen, southeast Asia exports could also provide support throughout the second half, though China’s economic growth should remain subdued, a Beijing-based steel trader said.

The Ministry of Finance recently ordered local governments to use CNY3.8 trillion of 2023 special bonds proceeds before the end of October, which will boost third-quarter infrastructure spending, while the recent Politburo meeting called for a step-up in economic support in the second half. Spot prices for Shanghai’s HRB400 20mm steel rebar traded at CNY3,700 a tonne on Aug 3, up 6% since May’s CNY3,490 low, according to Choice data.

“These recent announcements have lifted steel market sentiment but how much this translates into fundamental demand is still wait and see,” said Vivian Yang, a researcher at Shanghai-based commodity intelligence firm Mysteel. “Q4 still carries downside risk if peak construction season ends.”

China’s official steel industry PMI for June rebounded to 49.9%, up 14.7pp m/m and ending three months of consecutive decline. The China Federation of Logistics & Purchasing noted improved infrastructure activity and expectations for growth policies drove the increase.

Policy advisors recently told MNI local governments would boost efforts to support housing demand in coming months, particularly in tier-one cities. (See MNI: China To Boost Property Demand In Tier One Cities - Bonds & Currency News | Market News)

EXPORTS DOWN

Steel exports in June dropped 0.65% y/y breaking 13 months of consecutive increases that saw China ship 31% more steel in H1 y/y, according to official customs data. Local analysts believe exports will continue to fall.

“We see weakening global manufacturing sector demand driving steel exports down below H1 levels,” said Yang, noting narrowed price differentials between China and international markets would also bring exports down.

The manufacturing PMI export orders index fell to 46.3 in June, its sixth successive decline and the lowest since January this year, according to official data on Monday.

“Exports jumped in H1 given China’s price advantage and reasonable external demand, but in H2 we see these favourable factors coming down,” said Wang Guoqing, director at Lange Steel Research Center.

STEEL CAP

Authorities will likely cap steel production at 2022 levels, according to industry officials. Some major mills have already received private instructions to cut output, with an official nationwide rollout anticipated soon, according to local media.

In recent comments, China Iron and Steel Association Vice Chairman Li Lizhang said the cap, introduced every year since 2021, would improve profitability and lift prices in H2, though he pointed to the risk it could advantage mills that have already over produced.