Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The fiscal stimulus boosting infrastructure project is expected to fuel steel demand in China but floods in southern China could play spoil sport in July. Projects are likely to be delayed but bounce back shortly driving demand for rebar and structural steel in the mainland. 


Summer flood season is impacting steel production in China. Continuous heavy rainfall in many regions have caused floods in Zhejiang, Fujian, Jiangxi, Guizhou, Jiangsu, Hubei and Hunan, Anhui provinces. Authorities have sounded yellow alert for flooding along the banks of Yangtze River and disasters is declared in 24 provinces. Wuhan and Chongqing cities face a threat of flooding.


Decrease in inventories reported in late June is supporting steel prices in the country. Despite flooding, sentiments are high in China as state-funded infrastructure projects are expected to push up consumption of steel. China’s manufacturing PMI in June improved to 50.9, up by 0.3 percentage, indicating recovery in economic activities. Industrial resumption rate in China currently are close to 100pc, according to National Bureau of Statistics.


In June, crude steel output was 63.89mn mt, up by 4pc from the prior year and up by 2.7pc from May, and is expected to hit a record high, according to China Steel Association. In late June, steel products inventories at Chinese steelmakers dipped to 13.61mn mt, down by 6.87 from mid-June period. CISA estimates China’s total average daily crude steel output at 2.98mn mt in the late-June, which is up 6.34pc from the prior year period and up 0.01pc from mid-June. 


Blast furnace-based steelmakers has continued production despite flooding and drop in end-user demand amid disruption of transport and travel. Some EAFs and rolling mills have, however, suspended production or cut production amid extreme weather conditions.


Steel prices

Mills in China actively adjusted prices to boost steel demand. Billet prices on Wednesday rose by CNY20/mt to CNY3,370/mt ex-factory Tangshan including taxes. Downstream re-rolling processes in the region remain shut amid extreme weather alert and subdued demand from end-users. Prices of steel strips rose by CNY20/mt to CNY3,730/mt ex-factory Tangshan. Structural steel I-beam prices increased by CNY10-20/mt to CNY3,640-3,650/mt ex-factory. 


Heavy rains in East and South China are expected to hamper construction steel consumption in July. Auto sales increased by 11pc in June but are expected to remain slow in rainy season, thereby impact production and consumption of auto steel in the country. 

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