Chinese steel: hopes for the better

Energodigest | 6 July 2023
China’s metals sector remains on tenterhooks. According to the CISA, almost half of major mills were loss-making in the first five months of the year, while the country’s leading steelmakers warn that the industry faces a challenging second half of the year amid insufficient end-user consumption and ongoing thin margins.[1]

Equally alarming is the data from the National Bureau of Statistics of China, showing that the country’s steel output declined 7.3% from the month earlier to 90.1 million tonnes in May 2023 (see Fig. 1) and rose only 1.6% YoY to 444.6 million tonnes in the first five months of the year. The June figures don’t look any better, with the daily crude steel output being around 2% below that in the same period of 2022, S&P Global data suggests.[2]
However, China is not facing the worst scenario, with its steel sector’s PMI in June being only a smidgen away from the 50-point threshold (49.9), up 14.7 p.p. from May’s reading, supported largely by the rising number of new domestic orders,[3] though demand remains sluggish.

The negative factors are partly alleviated by buoyant growth in steel exports, which rose 41% in the first five months compared with a year earlier,[4] benefiting from a weaker yuan (see Fig. 2) and stronger demand from Southeastern Asia, the Middle East and Africa, with high energy costs there making their own steel production less competitive with China’s prices. If the current momentum continues, exports for 2023 could reach 77 million tonnes, a marked rise from the 67 million tonnes shipped last year.

The Chinese authorities may also give a boost to the country’s metals sector. The Premier’s recent statement that the government will launch more practical and effective measures to promote domestic demand and market vitality[5] is yet another reason for optimism. And market players are now awaiting the announcement of specific actions to shore up the industry.

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