the Domestic steel market in China will continue to experience downward pressure in the second quarter due to high levels of steel production, the growth of warehouse stocks of metal, falling exports and weak demand in the manufacturing sector. This is stated in a research note rating Agency S & P Global Platts.
the Growth of infrastructure projects will not be able to cover the decline of new housing and therefore will not be able to generate significant growth in steel demand.
Problems with liquidity in the iron and steel enterprises in recent years has decreased, partly due to recovery in demand from end-users and partly due to the weakening of monetary policy of China.
According to the people's Bank of China, short-term corporate loans and corporate bonds issued in the first quarter increased by 119% and 91% yoy respectively. More than sufficient short-term liquidity has allowed steel manufacturers to maintain a high level of production, despite the fact that growing reserves are closely related to huge cash flows from businesses and traders.
as a result, in the second quarter, the price of Chinese steel may fall because of excess supply, but is unlikely to fall due to a significant improvement in market liquidity. Prices ranging down, are probably the most likely scenario in the second quarter.
analysis of the S & P Global Platts shows that the production of iron and steel in China in April is likely to be reduced by only 1.9% and 0.6% yoy respectively.
In addition to the relatively high steel production, rising inventories of steel products in China will continue to put pressure on prices. According to estimates by Platts, the stocks of finished and semi-finished steel in China in late March, has reached 100 million tons, which is three times higher than a year earlier.
According to the National Bureau of statistics, the crude steel in China in the first quarter rose 1.2% year on year, while the area of new real estate over the same period fell by 27.2%. Investments in fixed capital in infrastructure and production fell by 19.7% and 25.2% yoy, respectively.
steel Stocks declined in April, but in the middle of the month, they remained abnormally high, indicating that demand from the end-user was not strong enough to solve the problem of oversupply, according to market sources.
the Fixture has witnessed the greatest demand among steel products. Despite this, stocks of rebar that are owned by the traders in Hangzhou - one of the most active inland trade centres, was still 75% higher than a year ago, but 8 percent below its peak in mid-March, according to Platts assessments.
steel Demand from the wind energy, shipbuilding and production of steel structures has been high since March, which led to higher demand for heavy plate. But, these three sectors account for only 6% of total steel consumption in China.
it is Expected that China will set the economic goals and will announce a more detailed policy incentives to the National Congress and political consultative conference.
Some market sources believe that this year in projects of urban infrastructure will be added more incentives through such measures as the issuance of government bonds and an increase in the budget deficit. This is because maintaining employment is a top priority for the Chinese government in 2020, and infrastructure development is the most effective way to improve it.
as a result China is likely to be higher demand for steel in the 3rd and 4th quarters than in the 2nd, due to the acceleration of infrastructure development.