Tuesday, May 21, 2024

China demand uncertainty caps steel firms’ prospects

China’s stagnant steel demand and rising exports despite the lifting of pandemic curbs could depress prices worldwide, posing trouble for Indian steel exporters.

Expectations were high that the Chinese economy would rebound after the easing of covid restrictions, boosting global steel demand and prices. Being the largest consumer of commodities, improved China demand can help support global steel demand and prices at a time concerns of a recession in developed economies remain high.

“In China, despite financial indicators being better than expected, we await signs of demand pick-up,” said analysts at ICICI Securities.

China’s weak domestic demand also comes as its steel production is rising, leading to higher risks on exports and, thereby, pressure on global steel prices.

Nomura Research suggested that China steel exports in February surged 70% from a year earlier, the highest since 2017, while for the first two months of 2023, total exports were up 49% from a year earlier and remained higher than the corresponding period of 2018-2022. China’s steel production rose 5.6% year-on-year in the first two months of 2023.

On the other hand, China steel imports during February, at 0.63 mt (million tonnes), were down sharply by 33.7%, whereas for 2MCY23, steel imports came in at 1.23 mt, 40% lower than the 2.2 mt average over 2017-2022, amid weak China domestic demand. During 2MCY23, steel demand in China was down 1.3% versus the corresponding period in 2022 and was also lower than that in the corresponding period of 2020-21.

“Weak domestic steel demand in China, resulting in higher steel exports, is likely to exert downward pressure on steel prices globally,” said analysts at Nomura Research.

As China’s steel demand uptick remains important for better global steel prospects, the onset of peak construction season in the country in April will be closely watched.

For now, Indian steel prices are also showing a mixed trend from stable to lower for various product categories. For the week ending 24 March, domestic hot-rolled coil prices in the traders’ market fell 300 a tonne week-on-week to 59,700 per tonne, as per ICICI Securities data. The same is also is being attributed to local holidays and the festive season, which includes Ugadi, Gudi Padwa, Navratri and Ramzan.

Meanwhile, declining raw material prices, especially that of coking coal, however, are expected to support the profitability of steel manufacturers. Premium hard coking coal has corrected 10% from the preceding month to around $351 a tonne.

Australian coal supply that was disrupted due to climatic conditions and logistics bottlenecks is now easing and will be positive to keep coal prices under check.

The pressure on global steel prices is partly due to the ongoing global banking crisis. Analysts at Motilal Oswal Institutional Equities said, “The bleak global outlook triggered by the banking crisis, coupled with year-end liquidity issues, and multiple festivals in March…have kept the buying interest at trade levels low. This has drifted the steel sector to ‘Wait and Watch’ mode.”

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#China #demand #uncertainty #caps #steel #firms #prospects

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