According to a new report issued by the China Iron and Steel Association (CISA), there are a number of factors that participants in the Chinese finished steel market should pay attention to in the coming period.
First of all, in the whole month of September, the average daily output in China amounted to 2.7 million mt, creating a historical new high. Since it will enter into the offseason for finished steel market, the high-level steel output will exert a negative impact on steel market.
Secondly, the sharp depreciation of Chinese currency has pushed up import iron ore prices. As of October 18, the Chinese yuan depreciated to RMB 6.9275 to the dollar, and this depreciation will likely continue, which will push up import iron ore prices further. Higher import iron ore prices will exert a negative impact on steelmakers’ profitability.
Thirdly, in the first nine months of the current year China’s finished steel export volume amounted to 53.08 million mt, down 10.7 percent year on year, maintaining its downward trend. Meanwhile, the escalation of trade tensions between the US and China will continue to negatively affect China's exports.
Meanwhile, as of October 12, finished steel inventory in China dropped to 10.67 million mt, up 7.13 percent compared to the end of August, while increasing by 2.72 million mt or 34.30 percent compared to the beginning of this year, and up 0.21 million mt or 2.01 percent compared to the same date last year. The increases in inventories of finished steel in China will also exert a downward pressure on the steel market.
The CISA report also said that China will increase the investment and expand the domestic market, resulting in better expectation towards prospect for the future steel market. However, the Chinese domestic steel market will continue to be characterized by oversupply due to the high level of steel output. It is thought that finished steel prices in China are unlikely to indicate big increases in the coming period, but will continue to move on a fluctuating trend instead.