CORRECTED-MNI: China H2 Steel Outlook Subdued

(Corrects estimate for decrease in property sector steel demand over whole year in fourth paragraph to 2.0% from 0.2%)

Chinese steel rebar prices are likely to stage only a partial recovery in the second half after sliding to CNY3,275 per tonne from CNY3,996 in January as construction and infrastructure work declines, with a risk of further falls if output controls lead to gluts of iron ore and coal, local analysts told MNI.

Prices should remain low during the summer off-season before fluctuating around CNY3,400-3,800 per tonne later in H2, given the property sector’s underwhelming performance, said Zhuo Guiqiu, ferrous metal researcher at Jinrui Futures.

Zhuo estimated property sector steel demand would fall 3.4% y/y in H2, with non-property appetite flat, resulting in an 2.0% overall decrease for the whole year overall.

But prices could fall as low as CNY3,120 if the government imposes steel output controls, which could see production fall 18 million tonnes or 1.8% y/y for 2024, Zhuo added.

“This risks an oversupply in iron ore and coal, collapsing input costs for steel makers,” Zhuo continued.

Declines in raw material prices, including the fall in iron ore prices from CNY1,002 a tonne in January to under CNY823 in early July, were a key factor behind this year’s steel price drop, said Wang Guoqing, director of Lange Steel Network Research Center.

The government unveiled in May a mandate for steel producers to save energy equivalent to 20 million tonnes of coal and to cut CO2 by 53 million tonnes over the 2024-2025 period.

But it remains unclear how intensely authorities will implement restrictions, Wang added.

Some support for steel prices should come from equipment renewal and consumer goods replacement, but relatively high global interest rates, tepid expectations for domestic Chinese stimulus, and stable supply release should bring downside pressure, Wang continued.

China's steel industry PMI read 47.8 points in June, down 2 percentage points m/m, while crude steel output was 438.6 million tonnes from January to May, a decline of 1.4% y/y, official data showed.

CONSUMPTION DOWN

“Stronger manufacturing demand will be insufficient to counterbalance the real estate drop this year,” said Zhou Fuhan, ferrous metal analyst at Nanhua Futures, who noted that the property downturn also sapped industrial appetite for steel-intensive machinery and domestic appliances.

Slower-than-expected issuance of project-backed special bonds by local governments and declining infrastructure activity has undermined demand in recent months, Zhou added.

In addition, heavy rainfall in southern China has dampened steel related activity, Wang noted.

China consumed 890 million tonnes of steel in 2023, down 3.3% year-on-year, according to the Metallurgical Planning Institute.

EXPORTS

Steel exports increased 24.7% from January to May but should slow in H2, to grow 10% in 2024 overall, down from 2023’s 36.2% increase to 90.02 million tonnes, Wang said.

Zhuo expected exports to expand by 15% this year, though he pointed to headwinds from anti-dumping probes launched by the EU, Brazil, South Africa, Vietnam and others.

Domestically, central authorities are not enthusiastic about mills exporting carbon-intensive low quality steel at cheap prices, the China head of a commodity research firm who did not want to be named told MNI.

Sluggish consumer demand will slow the uptake of the authorities’ mid-May housing rescue plan, advisors recently told MNI, noting authorities need to lower home purchase costs substantially to stimulate demand. (See: MNI: Big Price Cuts Needed To Lure China Homebuyers-Advisors)