China's crude steel output is likely to rebound significantly in February and March after a slight decline in January, market participants said, expecting the increase to undermine seasonal demand recovery and eventually weigh on Chinese steel prices.
China's daily crude steel output stood at 2.406 million mt over Jan. 1-10, almost unchanged from the daily average recorded in late December, according to latest data from the China Iron and Steel Association, or CISA. Daily pig iron output over the period slipped 0.5% from the late December average to 2.19 million mt.
Finished steel inventories at steel mills and spot markets monitored by CISA stood at 23.35 million mt Jan. 10, up 13.5% from Dec. 31 and 12% higher on the year, indicating steel demand was a lot weaker in January than in the same period in 2022.
This was partly due to the early Lunar New Year holidays in 2023, and partly because of an overwhelming wave of COVID-19 infections in China that started in December, dealing a heavy blow to economic activity.
The current wave of COVID-19 infections in China has seemingly come to an end in January, according to a market source.
“As people’s life has come back to normalcy, the steel demand in the spring season from both construction and consumption related sectors is expected to be stronger than in the fourth quarter of 2022 and a year ago,” a mill source said.
However, some steel traders were cautious about the market trend in February-March, adding that steel mills would ramp up steel production quickly in tandem with improved steel demand.
“Given China’s huge steel capacity and currently without government-mandated steel output cuts, I’m afraid the growth in steel production may outpace that of steel demand in the coming months,” a trader said.
Meanwhile, it remains to be seen whether China could have a second and third wave of COVID-19 outbreaks in 2023 that may lead to a big question mark over domestic steel demand's direction this year, most market sources S&P Global Commodity Insights spoke with said.
