Chinese steel prices likely to remain high as demand recovers

According to the latest monthly report from the China Iron & Steel Association (CISA) released on February 23, steel prices in China are likely to continue at their current high levels, supported by a recovery in demand after the Chinese New Year holiday and high raw material costs.

Steel demand will continue to grow, thanks to the central government’s measures to support the national economy in this, the first year of China’s 14th Five-Year Plan for 2021-2025.

In addition, downstream industries including infrastructure construction, real estate and manufacturing are expected to resume operations faster now that the coronavirus has been largely brought under control.

Overseas steel demand may recover due to the improved international situation on the pandemic. Chinese steel exports are likely to remain stable as the global economy has shown signs of turning around now that vaccination programs against COVID-19 have been intensified.

However, high production levels at Chinese steel mills could put pressure on the domestic market when end-user demand has yet to fully recover.

In the first ten days of February, CISA member mills’ daily crude steel production recorded 2.15 million tons per day. Based on the steel production of its members, CISA estimated that daily crude steel production nationwide averaged 2.81 million t/day during February 1-10, down 3.5% from the January average.

Despite the decline in early February, China’s daily steel production was still 7.5% higher than the same period last year, which could undermine the supply-demand balance in the near future.

Inventories of finished steel in steel mills’ yards and merchants’ warehouses have risen sharply. As of February 10, total inventories of the five steel products, which include reinforcing bar, wire rod, hot-rolled coil, cold-rolled coil and medium plate, held by merchants in the 20 major cities surveyed by CISA had increased to 11.3 million tons, up 16.5% from the end of January, while those held by CISA member mills grew 5.1% over the same period to 14.5 million tons.

Chinese steel producers face increased pressure from raw material costs due to the sharp rise in raw material prices.