In the latest instalment of the SteelOrbis COVID-19 Webinar Series, on June 11 Ms. Jiang Li, chief market analyst at the China Iron and Steel Association (CISA), explained the impact of the pandemic on the Chinese steel market and shared some views on market developments in 2020.
Demand recovers and exceeds 2019 levels
Steel consumption in China indicated a sharp drop in February, but major using sectors started to resume production from March. The most visible improvement was in the real estate and machinery sectors. During the pandemic, steel production in China was impacted harder than demand as 90 percent of steelmakers in China are BF-based and they cannot be shut down, Ms. Jiang Li said, adding that in February the utilization rate of BF-based producers declined to 80 percent and lower, while EAF-based mills were forced to cut production to 10 percent. In March, integrated steel mills increased utilization rates to above 80 percent, while producers with EAFs have operated at 70 percent of production capacity.
Infrastructure fixed-asset investments will be the main driver for steel demand growth in China this year and is expected to increase by 10 percent in 2020, according to Ms. Jiang Li. “We can forecast strong growth as the infrastructure boom has already started,” she said. This can be illustrated by the sharp increase in excavator sales, which surged by 19.4 percent in the January-May period.
Looking at the weekly accumulated steel consumption of five major products in China, in May it was already 8-10 percent above last year’s level, according to the CISA official. As a result, steel inventories accumulated early this year, peaking in March, then declined and will go down further in the coming months. “In general Q2 is better than Q1. And steel demand in H2 will be better than in H1,” said Ms. Jiang Li. Not only will the construction sector support steel consumption, but the automotive market has room to recover further in the second half of the year, she indicated.
Though steel consumption in China posted a sharp recovery over the past two months, the steel margins of large and medium-sized mills declined from above four percent in 2019 to a bit higher than two percent year to date in 2020, according to the CISA data. This happened because of a much faster increase in iron ore prices than in steel prices.
Imports and exports follow different trends
The position of China in the global market has changed this year as export volumes declined, while imports surged. In the January-May period this year, China exported 25 million mt of finished steel, down 14 percent year on year. The monthly sales volumes dropped to about 4 million mt from the peak of 11 million mt in previous years.
At the same time, “imports usually are 1 million mt [per month], stable for a long time. In the first five months of this year, they increased by about 20 percent,” Ms. Jiang Li said. Over the first four months of 2020, imports of finished and semi-finished products to China exceeded 1.5 million mt per month, while in December 2019 and March 2020 the figure exceeded 2 million mt, according to the data provided by the CISA. It is expected that imports will stay strong in the coming months. Ms. Jiang Li mentioned that the further dynamics of imports of semi-finished products and HRC up to the end of the year will depend on the recovery of demand from other countries. China’s imports are expected to increase by 5 million mt this year, Ms. Jiang Li said. In 2019, China’s steel imports decreased by 6.5 percent year on year to 12.304 million mt, and they are likely to reach 17 million mt in 2020.
In 2019, China exported 64.293 million mt of finished steel, down 7.3 percent year on year. They are expected to be closer to 50 million mt in 2020.