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China’s steel prices likely to incline in May

China’s domestic steel prices are likely to see another round of inclines, mainly underpinned by the fundamentals and better-than-expected macro-economic environment, though market cautiousness may trigger possible modest downward corrections, Wang Jianhua, Mysteel’s chief analyst, shared in his monthly market outlook.

“China’s steel demand may stay robust and even improve further, while supply will be suppressed, which will support the domestic steel prices for further gains in May,” he commented, adding, though, “when holding long positions in steel, short positions in iron ore when prices surge too high should be considered for the hedging purpose”.


In May, the country’s steel output growth is expected to be curtailed with Beijing’s release of the series of industrial policies and documentations recently, while demand will expand further and the pace of steel inventories destocking may pick up, all of which are to boost the market confidence and prices, he elaborated.


However, the market sentiment tends to be more sensitive when steel prices are high, and fluctuation is likely to emerge now and then in response to related news and factors, he pointed out.


Besides, China aims to reduce the annual steel output by at least 20 million tonnes on year for 2021, while over January-March, the domestic steel output grew 36.6 million tonnes on year, and another 10 million tonnes may be added for April, which means that over May-December, China needs to trim at least 66 million tonnes of steel output on year to achieve the annual production reduction target, he calculated.


“Although this is not a supply-side structural reform, but if achieved, this will be a year with the steepest annual steel supply reduction,” he said.


So far, the steel output decrease as a result of the restrictive measures on the local steel mills in the few cities in North China’s Hebei including Tangshan, Qinhuangdao and Handan since March 20 has all been filled up and even exceeded by higher steel output from other Chinese regions, he shared.


Therefore, to realize the annual steel output decrease, local authorities in the others parts of the country may be requested to submit their plans on local steel output cuts and to execute such measures when approved as soon as possible, he projected, expecting state-owned steel mills to be the role models in the act.


To realize the annual steel output cuts, for May China’s daily hot metal output among the 247 blast-furnace steel mills under Mysteel’s survey needs to be curtailed to below 2.3 million tonnes/day, or lower on year, or the ten-day crude steel output nationwide under the monitoring of the China Iron & Steel Association needs to fall to around 2.9 million t/d or down 100,000 t/y from mid-April.


On the other hand, better demand may see inventories of the five major steel products including those at the steel mills and commercial warehouses decline another 5 million tonnes in May after a monthly decline of 5.6 million tonnes for April to about 22.7 milion tonnes, Wang said, reasoning that steel exports tax rebate cuts, however, is unlikely to lead to substantial exports declines.


As part of the efforts to satisfy the growing need for steel on lower domestic steel output in China, Beijing has implemented a series of tariffs changes in ferrous products imports and exports starting May 1, all of which are meant to “reduce import costs, increase steel imports, which in turn will support the efforts in domestic steel output cuts and lowering the total energy consumption in the steel industry”, he added.


He quoted the comment from the secretariat official of Baoshan Iron & Steel Ltd (Baosteel), highlighting, though, that Beijing’s export tax rebate cuts had not been as harsh as expected.


The 13% export tax rebates have been kept on the exports of 23 high-end steel products such as commercial grade cold-rolled coil, hot-dipped and electrolytic galvanized steel, galvalume steel, tinplate, grain oriented electrical steel and some non-grain oriented electrical steel.


Even for those products with zero export tax rebates such as hot-rolled coil, heavy plate, chromium- and colour-coated steel, the much higher global steel prices will keep them remain competitive in exports, Baosteel commented, expecting its own exports of such steel products to be at 160,000 tonnes/month.


Under the circumstances, prices of the steelmaking raw materials may vary in movements, as iron ore prices may soften while coking coal and coke prices may have room for further gains due to the curtailment in supplies by the domestic environmental protection checks among the related enterprises. (source from Mysteel)