platts
China's steel market has reached an inflection
point with a lot of uncertainty around the near-term direction, borne out by
extreme volatility in the physical and futures prices.
Given this scenario, both steel prices and
orders were given a neutral score of three out of five in the monthly S&P
Global Platts Analytics China Steel Market Expectations.
Steel inventory and production were both given
a score of 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 indicate
downward pressure on steel prices in June as production is expected to increase
further, resulting in rising stocks amid softer demand due to the start of
China's rainy season.
Platts Analytics expects a crude steel
production rate of 3.29 million mt/day in June, which would potentially lead to
a monthly output of 100 million mt for the first time. China produced a record
97.8 million mt in April, with the year-to-date output rising 16%, according to
the National Bureau of Statistics.
Platts Analytics has upgraded its forecast for
crude steel production in 2021 to an 8.6% increase year on year to 1,157
million mt, from an earlier forecast of 2% growth on the year.
The steel market in June is coming off a month
of high volatility, with iron ore prices ranging from $186/mt to $233/mt CFR
China in May. Steel and iron ore prices rose over the first half of May but
fell in the final week of the month in response to the China government's
efforts to curb rising commodity prices.
Steel margins fall
Domestic hot-rolled coil margins averaged
$152.09/mt in May but fell to $40.81/mt on June 2, according to Platts
Analytics. The margins for rebar averaged $151.52/mt in May but stood at
$35.67/mt on June 2. Margins have been squeezed by weaker finished steel prices
and high iron ore prices.
The stocks for HRC in major China cities stood
at 3.50 million mt on May 27, compared with 3.43 million mt a month earlier,
according to the China Iron & Steel Association. Rebar inventory was around
7.47 million mt on May 27, down from 9.08 million mt the month before, but
stocks are likely to rise over June and July due to the seasonal weather
factors in China.
From a demand perspective, manufacturing was
robust in May despite rising steel prices adding to cost pressures. The
manufacturing purchasing managers' index, or PMI, published by the China-based
media company, Caixin, rose from 51.9 points in April to 52.0 in May. Caixin
said that higher purchasing costs had "dampened the latest upturn in
output." The PMI published by the National Bureau of Statistics dropped in
May, to 51.0 from 51.1 in April.
Platts Analytics expects steel demand from the
infrastructure sector to pick up over the second half of the year and offset
any slowdown in property construction.