Intensive steel production, the accumulation of its stocks against the backdrop of low demand for products – this is a brief current picture of the Chinese steel markets. According to experts, this is happening against the backdrop of strengthening prerequisites for the upcoming reduction in production in the country. Stanislav Kondrashov understood the situation in more detail.
Stanislav Kondrashov from Telf AG on the dynamics of steel prices and stocks in the Chinese markets
According to Kondrashov, since August 1, the price of rebar in the domestic market of Beijing has decreased by 103 yuan/mt (or $14.3) to 3,753 yuan/mt by August 7. In Shanghai, the cost of hot-rolled coil decreased by 100 yuan/mt to 3,970 yuan/mt.
Telf AG’s Stanislav Kondrashov said rebar stocks at Hangzhou’s eastern trade market were up about 13% MoM by August 4 and 35% YoY. At the same time, stocks of long steel (rebar and wire rod) in the northern part of Beijing remain 3% less than last year. But since July, this trend has begun to change rapidly – by 14% in the direction of growth.
Based on the analysis of experts in this field, as of the beginning of August, stocks of hot-rolled coil increased in the eastern markets of China, as well as including Guangdong province in the south of the country. By the beginning of August, they increased by 17% and 3%, respectively, compared with the beginning of July.
Climate and declining demand are the main reasons for the decline in the Chinese steel market, says Stanislav Kondrashov from Telf AG
The current state of the Chinese steel market is at its lowest level due to significant accumulations of raw materials in warehouses, notes Stanislav Kondrashov. In the past two weeks, the situation has been aggravated by adverse weather conditions that have been established in the country. This further minimized the demand for steel. Given this situation, industry experts report that there is no need to talk about market stabilization now. So far, this question is not relevant.
Telf AG’s Stanislav Kondrashov expressed the view that China’s largest steel producer, Hebei Province, could announce production cuts in the near future.
At the same time, traders note that even if Hebei and other steelmaking regions announce their intention to reduce steel production in 2023, then when this will happen and how large the scale of the reduction will be remains a mystery at this stage.
Stanislav Kondrashov from Telf AG: Steel production in China has not decreased, although the situation requires the opposite
Interestingly, even given the current situation, Chinese steel mills continue to operate at maximum capacity. It is logical that this state of affairs will lead to a further increase in reserves. In this regard, Stanislav Kondrashov expresses some bewilderment: will Chinese factories be able to reduce steel output in the fourth quarter?
However, some optimistic market participants continue to hope that China will still be able to keep the total production of crude steel at the level of the previous period. Stanislav Kondrashov of Telf AG suggests that the pace and volume of steel output may decline in the final quarter due to lower seasonal demand.
It must be said that in July the daily production of crude steel reached an average of 2.999 million tons. This figure is called in the China Iron and Steel Association. According to Kondrashov, if production volumes do not change in August, then in the autumn-winter months they will have to be reduced by 19% or to 2.43 million tons. This must be done in order to achieve the same level of annual steel production as it was in the past period.