Due to the continued slump in the real estate market, a sharp decrease in construction demand, and a surge in inventory, the price of a key steel material in China has dropped to its lowest point in nearly a decade.
According to the regional average price data provided by Beijing Antai Technology Information Co., Ltd., a center for non-ferrous metal industry information in China, the spot price of rebar steel fell for the 49th consecutive trading day on Friday (August 7th) to 3,142 yuan per ton, hitting the lowest level since November 2016. Rebar steel is an important indicator of the traditional steel market in China due to its widespread use in real estate and infrastructure projects.
Sabrin Chowdhury, Director of Commodity Analysis at BMI through Fitch Ratings, believes that the downturn in the Chinese steel market is related to the continued sluggishness in the Chinese real estate market.
“The July meeting of the Chinese Communist Party’s Politburo did not bring any respite to the ferrous metal market, as the government is increasingly inclined to accept a lower economic growth rate,” she said.
Morgan Stanley predicted in July that housing sales in China may continue to decline in the third quarter. China consumes approximately half of the world’s steel each year, but domestic steel demand remains weak due to the ongoing downturn in the construction industry.
Data tracked by the China Iron and Steel Association shows that as of July 31, steel mill rebar inventories had climbed to 4.2 million tons, a 9% increase from the previous month, further indicating lagging consumption compared to supply.
Florence Sun, a commodity strategist at Macquarie Group, stated that based on their understanding, Chinese steel mills have shifted their production focus from rebar steel to other steel products over the years, with data indicating a lag in adjustment speed.
She also added that the decline in rebar steel prices, coupled with rising costs of coking coal and coke, has led to a decrease in profit margins for rebar steel mills since late May.
According to data released by Mysteel this week, among 247 Chinese steel mills surveyed, profitability has declined for the fifth consecutive week, reaching 32%, a 36 percentage point decrease compared to the same period last year. However, there have been some signs of improvement in steel production this week.