China steel prices in June to decline in June amid volatile futures and physical markets: Analytics
Production will remain high, increasing pressure on stocks
The seasonal drop in demand could also weigh on prices
The Chinese steel market has reached an inflection point with a lot of uncertainty as to the near-term direction, confirmed by the extreme volatility in physical and futures prices.
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Given this scenario, steel prices and orders were given a neutral score of three out of five in the S&P Global Platts Analytics China Steel Market Expectations monthly report.
Inventories and steel production both scored four out of five for June. The score ranges from one, being the lowest, to five, being the highest, using a view based on market feedback and seasonal factors.
Taken together, the scores would point to downward pressure on steel prices in June as production is expected to increase further, leading to increased inventories amid weaker demand due to the onset of the rainy season in June. China.
Platts Analytics expects a crude steel production rate of 3.29 million tonnes / day in June, which could potentially lead to monthly production of 100 million tonnes for the first time. China produced a record 97.8 million tonnes in April, with annual production up 16%, according to the National Bureau of Statistics.
Platts Analytics improved its crude steel production forecast in 2021 to an 8.6% year-on-year increase to 1,157 million tonnes, from an earlier forecast of 2% year-over-year growth.
The steel market in June is emerging from a month of high volatility, with iron ore prices ranging from $ 186 / mt to $ 233 / t CFR China in May. Steel and iron ore prices rose in the first half of May, but fell in the last week of the month in response to the Chinese government’s efforts to curb rising commodity prices.
Steel margins are dropping
Domestic hot-rolled coil margins averaged $ 152.09 / mt in May, but fell to $ 40.81 / mt on June 2, according to Platts Analytics. Rebar margins averaged $ 151.52 / mt in May, but stood at $ 35.67 / mt on June 2. Margins have been squeezed by lower prices for finished steel and high prices for iron ore.
HRC stocks in major Chinese cities stood at 3.50 million tonnes on May 27, down from 3.43 million tonnes a month earlier, according to the China Iron and Steel Association. The rebar inventory was around 7.47 million mt on May 27, up from 9.08 million mt the previous month, but inventories are expected to increase in June and July due to seasonal weather factors in China.
From a demand perspective, the manufacturing sector was robust in May despite rising steel prices which added to cost pressures. The Manufacturing Purchasing Managers Index, or PMI, released by China-based media company Caixin, fell from 51.9 points in April to 52.0 in May. Caixin said rising purchasing costs had “cushioned the latest upturn in production.” The PMI index released by the National Bureau of Statistics fell in May, to 51.0 from 51.1 in April.
Platts Analytics expects steel demand from the infrastructure sector to pick up in the second half of the year and offset any slowdown in real estate construction.