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China’s steel demand falls on zero-Covid policy
China steel demand, prices could rebound after end of Covid lockdown
Global steel demand to grow in 2022 and 2023
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The global steel market weakened over the past month as Covid-19 lockdowns in parts of China, the conflict between Russia and Ukraine, and spiralling inflation heightened demand outlook uncertainty in 2022 and 2023.
In its Short Range Outlook (SRO) for 2022 and 2023, industry body World Steel Association (WSA) said:
Amid the dim steel demand outlook this year, US steel prices have been falling since March.
According to the US Midwest Domestic Hot-Rolled Coil (HRC) Steel (CRU) index futures traded on the Chicago Mercantile Exchange (CME), the June 2022 contract was trading at $1,127 per short ton on 27 June, down 5.8% compared with a month ago.
The HRC June contract hit a multi-month high at $1,650 on 15 March, as supply concerns over steel output and exports in Russia and Ukraine supported the market. However, market sentiment has soured since a strict lockdown was imposed in Shanghai in early April, causing prices to plunge in the subsequent weeks.
US HRC steel prices have been volatile since the start of the year. According to the CME steel historical prices, the June 2022 contract started the year at $1,124 a short ton, and fell to a low of $911 on 27 January, before rebounding above $1,000 on 25 February, a day after Russia invaded Ukraine. In 2021, the US HRC steel price trend was up for most of the year and hit a record high of $1,725 on 3 September before falling in the fourth quarter.
Are you interested to learn more about steel commodity prices and their outlook? Read this steel price analysis to find out the latest steel price news affecting the market and analysts’ forecasts.
China is the world’s largest steel producer and consumer, accounting for more than half of global output and finished steel demand. According to industry body WSA, China produced 1,032.8 billion tonnes of crude steel in 2021, equivalent to 52.9% of global output. The country consumed 666.5 million tonnes of finished steel products, equivalent to 51.9% of global apparent steel use in 2020.
As part of China’s zero-Covid policy, the country imposed strict lockdown measures in Shanghai in early April. Shanghai is China’s key financial hub and one of the major ports in the country. The restrictions severely disrupted the country’s import and export operations and hit Chinese economic growth in the second quarter.
Property sales also fell, leading to lower steel consumption in China in January to April 2022. Steel is mostly used in construction, so fewer properties being built reduces steel demand accordingly.
According to data the China Iron and Steel Association quoted by CNBC, national daily outputs of intermediary steel products, such as crude steel and pig iron, as well as finished goods, had been rising in May by between about 1% and 3%. Demand, on the other hand, had fallen. For instance, China’s consumption of crude steel fell 14% in May compared with last year, S&P Global Commodity Insights iron ore lead Niki Wang told CNBC, citing in-house analyses.
Inventory levels at Chinese steel mills have also risen 10.7% in mid-June from earlier in the month, and are about 82% higher compared to the start of 2022, according to data quoted by Bloomberg. The higher volume of inventories held by mills suggests lower sales in China from January to June.
China’s crude steel production also fell to 96.6 million metric tonnes (MMT) in May, down 3.5% year-on-year (YoY), data from WSA showed. The change in Chinese steel production from January to May 2022 amounted to a fall of 8.7% when compared to the same period in 2021.
As of 28 June, financial hub Shanghai has lifted its lockdown, signalling a potential recovery in the coming weeks and months. Many analysts had downgraded their expectations for Chinese steel demand and price outlook during the lockdown period, although most expected steel demand and prices to recover once restrictions were lifted.
Wenyu Yao, senior commodities strategist at Dutch bank ING said on 12 May:
Industry analyst Fitch Ratings expected demand in China “to recover quite strongly in the second quarter of 2022 when the lockdowns are lifted”.
The cost of raw materials (iron ore and coal) are expected to remain high in 2022 because of geopolitical tensions and state-mandated measures to reduce carbon emissions. Fitch Ratings also expected steel prices to remain fairly high this year.
The WSA forecast steel demand in China to remain flat in 2022 and potentially increase in 2023 as the Chinese government tries to boost infrastructure investment and stabilise the real estate market.
Despite the uncertainty caused by the war in Ukraine and lockdowns in China, the WSA forecast global steel demand to rise in 2022 and 2023.
Global steel consumption was expected to increase to 1.84 billion tonnes in 2022, up 0.4% from 2021. In 2023, steel demand was forecast to grow 2.2% to 1.88 billion tonnes. However, WSA warned that the projections are subject to high uncertainty.
WSA also expected the war in Ukraine to end in 2022 but the sanctions on Russia to largely remain. Sanctions imposed on Russia have reduced the availability of steel in Europe. According to WSA data, Russia produced 75.6 million tonnes of crude steel in 2021, accounting for 3.9% of global supply.
According to a technical analysis by MarketClub, the HRC August 2022 contract is in a bearish trend:
Prior to the Russia-Ukraine crisis, financial analyst Fitch Ratings expected the average HRC steel price to fall to $750 per tonne in 2022 and $535/tonne over 2023 to 2025 in its forecast published at the end of last year.
Due to the heightened uncertainty and volatility in the market, many analysts have refrained from giving long-term steel price projections to 2030.
Note that forecasts can be wrong. Analysts’ steel price predictions shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.
Whether steel is a good investment for you depends on your investing goals and portfolio composition. You should do your own research. And never invest any money that you cannot afford to lose.
Prior to the Russia-Ukraine crisis, analysts such as Fitch Ratings expected HRC steel prices to fall in 2022. However, with the uncertainty caused by the war and related market volatility, the steel price outlook is unclear on whether it will go up or down in 2022.
Supply and demand affect the price of steel. The cost of steel-making raw materials iron ore and coking coal are key drivers in steel prices. As steelmaking is an energy intensive process, the price of oil and gas will also affect steel prices.
The steel price has been falling because of the weak demand outlook brought about by the extended lockdown in China, which caused steel usage in January to April to fall in the world’s largest consuming country.
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