In May, Chinese prices for key steel products and key steelmaking inputs declined under pressure from bearish market sentiment amid pandemic-related restrictions, Wang said in his May 30 monthly market review. popular steel products hit a 4-month low.
In his new outlook report, Wang cited several reasons for China's steel market to recover in the near term, including improved macroeconomic conditions, improved steel demand and limited steel supply growth next month.
The State Council - China's cabinet - rolled out a comprehensive policy package on May 23 to further support the national economy, ensure that economic growth resumes its normal trajectory, and that the economy continues to grow within reasonable limits, as reported.
33 measures recently introduced by the State Council cover six aspects of the country's economic foundations, ranging from conducting fiscal and monetary policies aimed at stabilizing the economy and stimulating domestic consumption and investment, to stabilizing production and supply chains and securing national energy security.
"More government stimulus programs are expected to be released in June," Wang said. “And when such measures start to take effect, the economic situation in China will definitely improve, and domestic steel prices may sharply correct upward next month,” he added.
Wang also believes that the scheduled lifting of the two-month COVID-related lockdown in Shanghai, East China's largest steel trading hub, scheduled for June 1, should seriously spur domestic steel demand.
“Based on the various data currently available across key steel consumption sectors (including manufacturing, automotive assembly and construction), domestic steel demand could recover at a robust pace in June as more end-users arrive to fully resume their activities with further easing of COVID restrictions across the country,” Wang said.
On the supply side, short-term production among the country's steelmakers will be limited as mills react to the meager or even negative profit margins they currently earn on sales, Wang pointed out.
According to a Mysteel survey of 247 blast furnaces and 75 independent electric steel plants (EAFs) across China, less than half of the sampled blast furnaces were able to generate some marginal profit as of May 26. Among mini-mills, more than 73% of the chipboard manufacturers surveyed suffered losses during production.
In addition, Wang believes that steel prices in China may also receive some support from the relatively high cost of the main raw materials for steel production, including iron ore and metallurgical coke.
There should therefore be no doubt that steel prices in China will bounce back this time around after holding their recent lows for some time. The projected recovery in steel prices could also be a prelude to strengthening the domestic steel market in the second half of this year,” Wang concluded.
