China’s steelmakers may reduce production in July due to low prices – forecast

The market expects further steps on economic stimulation

In July 2024, steel prices in China will continue to be influenced by the deterioration of fundamental steel indicators in the country. This forecast is given by the chief analyst of Mysteel Wang Jianhua, reports BigMint.

However, some upward momentum may be given by market expectations that the central government will soon introduce new economic stimulus measures.

Sluggish demand in June from end consumers continued to drag down domestic steel prices. In early July, steel consumption almost did not recover even though the downpours were supposed to stop – they often led to the interruption of domestic industrial production in June.

The level of activity of Chinese industrial enterprises, the analyst warned, in July may be limited by a narrow profit margin and limited financial liquidity both in terms of production volumes and replenishment of raw materials.

According to statistics published by the People’s Bank of China, the volume of money supply (M1) in the country in May recorded the largest drop in history (-4.2% y/y). In addition, the accounts receivable of large Chinese enterprises at the end of May amounted to 24.2 trillion Yuan, an increase of 8% compared to May 2023.

As Wang explains, this means that domestic companies may not have enough funds to continue or expand their projects in July, respectively, and demand for steel will decrease. At the same time, high domestic supply of metal products will put pressure on prices.

More Chinese steelmakers are expected to cut production in July in response to significant sales losses.

However, market sentiment may improve, as a meeting of the Central Committee of the Communist Party will be held in Beijing in mid-July. According to Wang, although the guidelines may not have an immediate impact on metallurgy, some support for domestic steel prices may provide an increase in optimism in financial markets.

In addition, amid government efforts to reduce carbon emissions in the country, additional

In addition, amid government efforts to reduce carbon emissions in the country, in the second half of 2024, additional policies may be introduced to limit domestic steel output.

«The market will have more confidence about prices as long as market participants have positive expectations about Beijing’s policies,» the analyst said.

Recall that Chinese steel companies in January-May 2024 reduced steel production by 1.4% compared to the same period in 2023 – to 438.61 million tons. In May of this year, this figure increased by 8.1% m/m and 2.7% y/y – up to 92.86 million tons.