MNI: China Stimulus To Support Steel Futures Until Peak Season
MNI (BEIJING) - Beijing’s moves to boost domestic demand and market expectations for output cuts should keep steel rebar futures at around CNY3,150-3,400 a tonne over the next few months, local analysts told MNI, though rising global tariff barriers and increasing iron supply could present downside risk later in the year.
Increased government funding to promote equipment upgrades and consumer goods trade-ins will boost demand for automobiles and home appliance manufacturing, while infrastructure and urbanisation projects will underpin appetite for construction steel, said Zhu Shanshan, an analyst at JLC Network Technology, a commodity service provider.
“Additional domestic demand will likely partly offset the tariffs impact but it’s hard to completely make up for the decline,” she said.
Bai Jing, an analyst at Hongyuan Futures, expects the May contract on the Shanghai Futures Exchange to fluctuate around CNY3,180-3,400 a tonne until the peak season in March and April when steel production and sales data should give a better idea of whole-year performance.
“Prices could fall below CNY3,000 in Q2 should demand peak fail to materialise, before the implementation of output cuts that could offer some price support,” Bai said, adding that output cuts are usually released around mid-year.
Domestic demand may only remain the same as last year, Bai continued, while rising tariff barriers could mean reductions in steel exports of over 10 million tonnes.
May contracts extended last week’s 1.99% decline, falling a further 1.59% to CNY3,212 per tonne so far this week, with Zhuo Guiqiu, senior researcher at Jinrui Futures, saying that economic support measures announced during the major Two Sessions policy meeting were already priced in. (See MNI: China Borrowing Plan Keeps Policy Space Given Trade Risks)
Zhuo also saw a risk that steel prices could fall below CNY3,000, pointing to the expected rise in iron ore supply in the second half of the year.
The most optimistic scenario is for steel consumption to remain the same as last year, probably at around 890 million tonnes, given that new property starts will remain subdued as policymakers focus on absorbing excess housing inventory, Zhuo said. Unlike traditional infrastructure, underground pipe networks are relatively limited in steel consumption, he added.
JLC Analyst Guo Yang said CNY3,150 a tonne likely represented a short-term defensive level should demand remain weak against increased supply following the resumption of production post-holiday. Prices may not bottom yet, he warned, expecting the most actively traded rebar futures to fluctuate between CNY2,700-3,600 throughout the year.
OUTPUT CUTS
Meanwhile, the markets received cautiously Beijing’s announcement to "promote restructuring of the steel industry through output reduction" in a report by the National Development and Reform Commission released during the Two Sessions meeting.
“Prices of coal and iron ore fell significantly, driving steel prices downward,” Bai noted. (See MNI: China Coal Prices Face Further Downward Pressure)
Both Zhuo and Bai said the 50-million-tonnes output reduction figure rumoured in markets, equivalent to about 5% of 2024’s total production, would be far too aggressive, and that a 20-million-tonne cut more appropriate to reach a supply-demand balance and be more consistent with the country’s long-term objectives for reducing energy consumption and boosting use of scrap steel.
Production cuts will provide strong support for steel prices, especially amid low inventory and gradually recovering demand, however, a fall in raw material prices may also open some downward space, said JLC Analyst Guo Xinjie, expecting medium- to long-term steel prices to strengthen gradually.