Demand for steel in China’s manufacturing sector to grow in November – forecast

Demand for steel in China’s manufacturing sector may increase in November. This forecast is made by Wang Jianhua, Chief Analyst at Mysteel, based on the PMI for the manufacturing industry.

According to the data released by the National Bureau of Statistics on October 31, the manufacturing PMI recovered for the second consecutive month in October, showing a level of 50.1. The production and new orders indices also showed good results.

In addition, other Chinese economic indicators, such as retail consumption and fixed asset investment, showed positive growth in October compared to September, although it was moderate. According to the analyst, this will also support steel prices to some extent. On the other hand, high production rates at steel mills will put significant pressure on prices.

As most steelmakers can still make some profit from selling their products, it is unlikely that they will cut production in the near future.

In November, the supply of steel on the Chinese market may increase by a maximum of 1 million tons, while demand is unlikely to reach this level. Thus, the analyst noted, steel stocks may stop falling and a period of accumulation will begin.

By the end of October, the total stocks of basic carbon steel from producers and traders in 35 Chinese cities monitored by Mysteel decreased by 7.8% compared to September, to 12.3 million tons. This is the lowest level since the end of December 2019.

Large volumes of steel production by steel mills may result in oversupply and pessimism in the market. However, low inventories will not allow prices to fall significantly. According to the analyst, they will remain in a narrow range in November. The market expects further steps to stimulate the economy by the central government. In early October, steel prices in China briefly hit a seven-month high and then quickly fell as market sentiment cooled.

As GMK Center reported earlier, China’s leading steel mills cut their gross profit by 56% yoy in January-September. Jiang Wei, vice president and secretary general of CISA, said that the country’s steel industry is facing a contradiction between supply and demand. The country’s steel production has fallen slightly, but it still does not meet domestic demand, which is declining at a faster rate.