China’s Steel Market Faces Significant Price Decline, BofA Analysts Report
Last week, China’s steel market experienced a major price drop, according to analysts at BofA Securities. Export prices for steel from China saw a sharp decrease, with hot rolled coil (HRC) falling by $31 per ton to $449 per ton, and rebar prices declining by $28 per ton to $462 per ton.
This price reduction is a reflection of the ongoing challenges confronting the Chinese steel industry, which are exacerbated by weak demand and economic headwinds.
BofA analysts noted that cash margins for Chinese steel producers have shown mixed results. While spot cash margins for rebar slightly improved by RMB35 per ton, they remain negative at -RMB45 per ton.
On the other hand, HRC margins worsened, dropping by RMB112 per ton to -RMB23 per ton. This has led to many steelmakers implementing voluntary production cuts, resulting in decreased blast furnace (BF) and electric arc furnace (EAF) utilization rates.
The BF capacity utilization rate among the 247 steel producers tracked by Mysteel declined by 110 basis points to 85.92% between August 9th and 15th. Hu Wangming, Chairman of China Baowu Steel Group, described the current conditions in the Chinese steel sector as a “harsh Winter” that could be “longer, colder and more difficult to endure than we expected.”
Analysts predict that the ongoing weak steel demand is unlikely to change in 2024-25, largely due to the severely depressed property market, which accounted for around 29% of China’s steel demand in 2023.
New construction starts have plummeted by 52% from their peak in 2021, with a 24% year-over-year decline in the first half of 2024. The continued weakness in infrastructure investment adds to the issue, as major projects are nearing completion and there are limited new initiatives in sight.
Given these circumstances, the outlook for China’s steel sector remains challenging. BofA analysts suggest that without a significant uptick in demand, the steel industry in China may continue to face low prices and reduced margins well into 2025.