Fitch Ratings expects the rally in China’s steel price to slow in coming weeks as summer approaches, as the season tends to see lower downstream demand due to subdued construction activity. However, a combination of high iron ore prices and new environmental regulations that limit supply are likely to keep the steel price elevated.
China’s steel price has soared since the beginning of the year, with the rally gaining more steam at the start of May, post China’s labour day holiday, as downstream producers started to replenish steel inventory. For example, rebar prices surged to CNY6,000/tonne (t), including value added tax, to be up by more than CNY600/t from end-April. The rally is the result of a combination of factors, including strong demand from the construction industry as well as electronic vehicle production, the implementation of production restriction policies, and higher iron ore prices. Iron ore accounts for close to half of steel’s production cost; the price has risen by over 40% in the year to 12 May 2021, against a 20% rise in the cost of steel products during the same period.
Production restrictions in Hebei province are also playing a large role in the rally. Tangshan, a core steel-making region in the province that accounts for close to 15% of China’s total crude steel output, has implemented production restriction policies ranging between 30%-50% throughout the year in an effort to reduce carbon emissions. This is likely to see production drop by over 30 million t over the year, according to CRU, and follows the government’s requirement to lower yoy crude steel production from 2020’s all-time high of 1.05 billion t.
The surge in global demand and tight in supply due to production curbs in China has sent steel prices up impacting automakers. The continuing surge in global steel demand, production curbs in China, and high iron ore prices will together fuel another surge in domestic steel prices, according to analysts
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