Is China's steel demand improving?

• New batch of policies unveiled to boost growth
  
  
• Some consuming sectors improve, realty still struggles
  
  
• Supply-side pressures may reign in short term
  
  

Morning Brief: China's domestic economy continues to recover, but the demand is still insufficient, as per some sources and the fundamentals for a strong economic recovery still need to be strengthened. Recently, another batch of policies for stabilizing growth have been introduced. These range from measures to optimize foreign investment to those supporting agri growth, small businesses, and adjustment of existing housing loans under the guidance of the central bank.

Demand perspective

From the perspective of demand, the traditional off-season is gradually changing over to the peak season. Thus, market transactions are gradually improving. Trade and retail level (social) steel stocks are beginning to decline, and the demand for re-stocking is increasing.

Raw material cost aspects

From the perspective of cost, prices of iron ore have been fluctuating and rising. The price of scrap has remained stable, and that of coke has also been fluctuating. Thus, mills are uncertain about the direction of steel raw material prices.

According to sources in China, in the current week (21-25 August), the domestic steel market will be driven by the policy of stabilizing growth and the reduction of the interest rate of the central bank.

Steel industry indicators

Crude steel 10-day production: In the first ten days of August, daily crude steel output of key steel enterprises was 2.15 million tonnes (mnt), an increase of 0.80% in late-July.

Steel production: Crude steel production in July was at 91 mnt, an increase of 11.5% y-o-y.

Steel factory inventory: In the first ten days of August, the inventory of key steel mills was at 16.05 mnt, an increase of 10.8% in late-July.

Coal production: Raw coal production in July was 380 mnt, up a negligible 0.1% y-o-y.

Coke production: Coke production in July was 40.43 mnt, an increase of 3.7% y-o-y.

Iron ore production: July iron ore production in July increased 8% y-o-y.

Macro-economic indicators

Industrial production: From January to July, the added value of industrial enterprises above designated size increased by 3.8% y-o-y.

National power generation: In July, the national power generation was at 846.2 billion kWh, an increase of 3.6% y-o-y.

Social electricity consumption: In July, electricity consumption was 888.8 billion kWh, an increase of 6.5% y-o-y.

Downstream demand

Some segments improve but others still struggle.

Real estate: From January to July, the national real estate development investment was at RMB 6,771.7 billion, down 8.5% y-o-y.

Household appliances: In July, air-conditioning production increased by 29% y-o-y. The output of washing machines in July increased 16% y-o-y. Production of refrigerators in July increased by 15% y-o-y.

Machinery industry: Excavator output in July fell by 34% y-o-y, and that of metal cutting machine tools was down 2% y-o-y.

Shipping industry: The output of civil steel ships decreased 10% y-o-y last month.

Outlook

From the perspective of the supply side, due to the narrow fluctuations in the steel market and the relative resilience in raw material prices, steel mills are not likely to increase production capacity in the short term, say sources. The short-term supply side will thus show a slight decline.