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Global steel prices will likely increase marginally from current levels till December on hopes that the Chinese property sector will witness a turnaround with Beijing likely to announce some stimulus.
Global steel demand has continued to slow, driven by China’s ongoing property sector weakness, as well as lower demand from European manufacturing and construction, the Australian Office of the Chief Economist (AOCE) said in its quarterly review.
“Global steel producers are expected to face subdued demand and moderating prices over the rest of 2023,” it said.
Prices may improve
Despite a recovery in the Chinese economy, physical demand for metals including steel has been tepid at best in the first half as growth was largely led by the service sector, said research agency BMI, a Fitch Solutions unit.
Though the Chinese property sector is still in contraction, “we are seeing signs of a turnaround in Mainland China’s steel consumption growth,” said the research agency.
The Trading Economics Website said steel rebar futures fell below 3,600 Chinese yuan (CNY) per tonne in October — a 2-month low — as markets continued to assess the Chinese resources demand amid its uncertain outlook.
“Concerns of liquidation for Evergrande and Country Garden’s efforts to restructure debt for a second time stoked fears of financial contagion for China’s debt-ridden constructors,” it said.
BMI said, “We are holding on to our 2023 global average steel price forecast of $730/tonne and expect prices to improve slightly from current levels in the coming months into 2024.”
On NYMEX, HRC steel futures continuous contract is currently quoting at $697 a tonne.
Weak residential construction and falling industrial output in advanced nations is likely to be only partly offset by growth in infrastructure and non-residential construction activity, said AOCE.
Subdued production
Many steel producers have already cut back production and global production is expected to remain relatively subdued through 2023 and into 2024, it said.
However, production growth is expected to be the strongest in countries and regions such as India, South-East Asia and West Asia.
But Trading Economics saidfinancial concerns have already driven key developers to halt construction in a series of uncompleted and yet-to-start projects in China, hampering steel buying from one of its primary sources.
ING Think, the economic and financial analysis wing of Dutch financial services firm ING, said recent data from the China Iron and Steel Association show that steel inventories at major Chinese steel mills fell to 15.2 million tonnes (mt) in late September, down 3.24 per cent from mid-September.
On the other hand, crude steel production at major mills fell 3.2 per cent from mid-September to 2.07 mt a day in late September due to weak profit margins, lower steel prices and higher inventories.
“Crude steel production is now at its lowest level since February as demand from China remains weak,” said ING Think.
“Despite some promising signs in the March quarter 2023, the expected stabilisation and turnaround of China’s now multi-year property sector decline has not eventuated,” said the Australian Office of the Chief Economist.
As a result, demand for steel in China has been weak, reducing Chinese steel mills’ profit margins. Growth in global industrial production — a key driver of steel consumption — is expected to remain weak for the remainder of 2023 as world economic growth is losing pace, AOCE said.
Moderating global demand due to slowing economic growth, as well as higher energy and input costs, continue to impact manufacturing activity across many major economies.
“Industrial production has been particularly weak in the EU, Japan and South Korea during 2023. Weakening demand has seen the Eurozone construction sector slide into deep contraction over the past six months,” the Australian Office of Chief Economist said.
BMI said China’s consumption growth is starting to turn a corner, which will work to support prices along with India’s continued demand strength.
AOCE said India’s steel production is forecast to grow 6.8 per cent in 2023 to 134 million tonnes. But the outlook for US steel demand in the second half of 2023 contains downside risks.
“Residential construction is facing increasing headwinds from rising interest rates and higher land and material costs,” it said.
AOCE said an uncertainty surrounding the rate of China’s steel output growth in 2023 is whether, and to what extent, the Chinese Government chooses to cap steel production levels over the rest of the year.
If production caps were to be set at 2022 levels, there would be sharp falls in production in the fourth quarter. Also, elevated energy prices continue to adversely impact steel demand and remain a key risk, it said.
Research agency BMI said it expects production to increase in the fourth quarter, improving supply and extending to the first quarter of 2024, driven by Chinese steel mills. Production recovery is likely in other key markets too.
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