Weak demand from the real estate and construction sectors will continue to put pressure on prices

China’s steel production decline is expected to continue in November and December 2022, with weak demand weighing on prices. S&P Global about it.

In October 2022, according to the National Bureau of Statistics, daily steel production fell by 11.2% m/m – to 2.57 million tons, which is the lowest indicator since December 2021. In general, in this period, this indicator fell by 8.3% compared to September – to 79.76 million tons, and the drop for 10 months was 2.2% y/y.

According to S&P Global Commodity Insights’ calculations, the total volume of steel production at the end of 2022 will amount to 1.0175 billion tons, which is 1.7% less in annual terms.

Pig iron production in October 2022 decreased by 4.2% m/m – to 70.83 million tons, in 10 months it fell by 1.2% y/y – to 727 million tons.

According to insiders, China’s pig iron and steel production will continue to fall in November and December due to weak end-user demand because of the winter season and the government’s demand to cap production at 2021 levels.

An improvement in market sentiment following the easing of quarantine restrictions supported steel prices in November, particularly as rebar sales, an indicator for China, rose. Market participant says, that increasing profitability will push steelmakers away from cutting production. However, this will not be good news, because at the moment there are no prospects for the recovery of the real estate and consumer sectors. In particular, the number of new buildings in the country, according to the data of the National Bureau of Statistics, fell by 35% y/y in October 2022, in 10 months this indicator decreased by 38% y/y. Construction is the main driver of steel demand in China.

Some steel market participants expect new construction sales to begin to recover in 2023, mainly due to the low performance of 2022. However, as the publication notes, any serious measures to stimulate consumption may be announced in March next year. For now, weak demand from the real estate and construction sectors will continue to put pressure on steel prices.

As GMK Center reported earlier, steel companies of China in January-October 2022 reduced production of steel by 2.2% compared to the same period of 2021 – to 860.57 thousand tons. The production of steel products in China for 10 months reached 1.116 billion tons, decreasing by 1.4% to January-October 2021.