According to a new report issued by the China Iron and Steel Association (CISA), there are a number of factors that signal a weakening of steel prices in China in September.
First of all, inventory levels of finished steel increased in July. As of the end of the July, finished steel inventory in China amounted to 15.23 million mt, up 1.22 million mt or 8.75 percent compared to the end of June. As of August 16, inventory of finished steel in China totaled 15.69 million mt, up 460,000 mt or 3.04 percent compared to the end of July. The rises in finished steel inventory will exert a negative impact on finished steel prices in the future.
Secondly, in July, the average daily crude steel output in China amounted to 2.749 million mt, down 5.8 percent compared to June, constituting the fourth-highest historical figure despite the decline from the all-time high recorded in June. The high capacity utilization rate will negatively affect the finished steel market.
Thirdly, the China Iron Ore Price Index (CIOPI) stood at $88.71/mt as of August 16, down 23.50 percent compared to the end of July. The CISA considers that import iron ore prices which are still at relatively high levels will likely edge down further in the coming period. As of August 21, iron ore prices for fines with 62 percent Fe content have already slipped to $82.75/mt CFR, according to SteelOrbis’ information.
Moreover, China exported 39.97 million mt of finished steel in the first seven months of this year, down 2.9 percent year on year. The CISA has advised Chinese steelmakers to improve product quality and increase their competitiveness in the global market.
The CISA indicated in its report that finished steel prices in China will likely come under pressure in September as declines in iron ore prices will not provide any support for finished steel prices, though demand for steel will improve in the coming month.