China's steel output retreats in mid-Sep, but decline seen too modest

China's daily crude steel output fell slightly in mid-September, according to China Iron & Steel Association data, but overall, September output could still be higher than in August, market sources said Sept. 25.

While steel output is expected to remain relatively elevated in the near term, end-user demand is likely to come under pressure due to a slowing property sector, they said. China's property sector is the largest steel demand consumer.

Chinese steel prices would continue to remain volatile, although at low levels, unless China significantly widens government-mandated steel output cuts in the coming months, some sources said.

Steel output

China's daily pig iron and crude steel output for Sept. 11-20 decreased by 0.2% and 1.1% from early September to 2.439 million mt and 2.779 million mt, respectively, CISA data showed.

As a result, daily pig iron and crude steel output for Sept. 1-20 averaged 2.441 million mt and 2.795 million mt, respectively, up 1.4% and 0.3% from daily averages in August, but down by 0.9% and 3.6% on the year, calculations of S&P Global based on data from the CISA and National Bureau of Statistics showed.

Finished steel inventories at steel mills and spot markets monitored by the CISA totaled 25.07 million mt on Sept. 20, up by 3% from the end of August, although about 5% lower than a year earlier.

Some market sources expected China's steel production to fall in October due to seasonal factors, but the decline was likely to be modest, as Chinese steelmakers were either making thin profit margins or losses that were still not significant to trigger large output cuts.

According to some market sources in eastern China, the sales profit margin of Chinese domestic rebar was currently still about breakeven, and hot-rolled coil was being sold at a profit of around Yuan 50-100/mt ($6.90-$13.70/mt).

"At the moment, I think steel mills are more willing to maintain production in a bid to force others to reduce production first," one eastern China trading source said.

Meanwhile, given concerns over economic growth, the Chinese government may be less stringent on steel output cuts this year, which may leave China's annual crude steel output in 2023 higher than in 2022, according to some market sources.

Property remains drag on steel demand

China reduced down payment requirements and mortgage rate floors for homebuyers in August.

Despite that, China's home sales, a major channel to fund new home projects, are likely to continue downward in September, according to a local media report.

Chinese new home sales over January-August were down 7% on the year, and already 35% lower than in the same period of 2021.

Some steel market watchers said China's property market has entered a long-term downturn that policy support can only mitigate, not reverse.

"Oversupply has not been serious in the Chinese domestic market this year, mainly thanks to strong steel exports. But I think in the long term, China's steel production will follow the trend of the property sector and show a downward trend even without government-mandated output cuts," one mill source said.