Steel and raw material futures prices have recovered gradually today, June 6, following a significant decline over the first three days of this week and the negative trend of the past week. The recovery happened after rumors emerged that the Chinese authorities are going to set a target for crude steel production this year to be up to 20 million mt less than last year. This has firstly positively impacted steel futures prices, but raw materials, like iron ore, have also reacted positively.
According to local media and market sources, there are rumors that China will lower crude steel production by 18-20 million mt this year. Some market sources said that this is a preliminary plan which has not been officially presented yet. Official bodies like the National Development and Reform Commission or the China iron and Steel Association have not made any announcements so far. “We didn’t receive any requirements [from the authorities], but I am not surprised. China needs to work on emissions [reduction] and consolidation,” the representative of a Chinese mill said.
Rebar and HRC futures at Shanghai Futures Exchange gained 0.64 percent and 1.06 percent respectively today. Market sources believe that the rebound was not so sharp since in general the fundamentals like demand and supply have not changed. “I see this as a pause [in price declines] before the Dragon Boat Festival [on June 10], I don’t think that the trend can change as it is the offseason,” a trader commented.
In the January-April period this year, China’s output of crude steel totaled 343.67 million mt, which is three percent lower than the same period in 2023, equivalent to a 10.6 million mt loss already this year. At the moment, most market participants polled by SteelOrbis do not expect any sharp production cuts. “I see the picture being very similar to last year”, another source said, when there were no official restrictions and mills lowered outputs closer to the end of the year to match the targeted “stable from last year” crude steel volumes. It is worth mentioning that finished steel outputs both last year and in the January-April period of 2024 increased.
“Inventories at mills have started to increase and demand will not improve in June and July, so we are not talking about an uptrend [in prices] anytime soon. The market dynamics will stick to restocking needs [before the short holidays] and I am not optimistic for the rest of June,” one more Chinese market source said. Inventory levels of the large and medium-sized steel enterprises, CISA members, declined by 8.3 percent month on month to 14.57 million mt on May 31, while the expectations are for a rise of 5-10 percent in early June, according to sources.