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China’s major steelmakers recently warned of a ‘very difficult’ second half of the year (H2), which could have an impact on steel prices. As reported by market sources quoting the China Iron & Steel Association (CISA), this goes against previous expectations of improvement in the sector.
CISA also stated that ‘the tipping point for steel demand has been reached, while the problems of insufficient end-user consumption and low margins are particularly evident’.
CISA also noted that Chinese steel mills operated at a loss in the first five months of 2023. However, ongoing real estate crises and slowing economic growth continue to have an impact on steel prices. Demand in the world’s second largest economy has been affected.
China’s Q1 GDP grew by 4.5% year-on-year, exceeding previous expectations of 4%. However, this growth was mainly in the service sector and not in manufacturing or construction. The default of local property developer Evergrande at the end of 2021, totalling USD 300 billion, helped to dampen the appetite for Chinese real estate.
The manufacturing sector also contracted in June. In fact, the Caixin/S&P Global manufacturing purchasing managers’ index (PMI) for June fell to 50.5. This is a drop from the 50.9 recorded in May,
The outlook for China depends on whether the National Development and Reform Commission takes further action.
HRC Steel Prices China euro/ton – Powered by Commodity Evolution
In response to slowing growth, the People’s Bank of China started to cut rates in June, bringing the medium-term lending rate to 2.65%. Insufficient utilisation did not help struggling steel prices, even though Chinese inventories declined from May to June. In a report on 3 July, CISA stated that the country’s steel stocks stood at 9.24 million tonnes at the end of June. This figure reflects a 3.3% drop from the previous month’s 9.56 million tonnes.
China’s poor outlook is also likely to have an impact on Europe. The market is already quite negative and the influx of Asian imports, partly due to the overproduction of Chinese steel mills in the first quarter, is likely to put pressure on hot rolled steel prices across the continent. Meanwhile, in February, the European Commission announced that it expects GDP growth of the 27 members to be below 1% in 2023.
The price of hot-rolled coils in Northern Europe stood at EUR657/mt on 11 July, up 0.91% from prices at the beginning of July.
HRC Hot Rolled Coils – Northern Europe euro/ton – Powered by Commodity Evolution
