China's manufacturing steel demand rebounds, market pressure expected with rising supply

China's manufacturing steel demand rebounded in June to a higher level than seen a year ago, providing support to flat steel markets that have been under pressure due to a rapid growth in production, market participants said July 17.

With robust manufacturing steel demand supporting higher flat steel production in China, flat steel output was expected to further rise in the second half of 2024, which could bring pressure back on steel markets, trading sources said.

On the manufacturing side, strong exports of manufactured goods had a major contribution to the strong manufacturing activity, some sources said. They expected the strength in export market of manufactured goods to be maintained throughout 2024.

Manufacturing production index

China's manufacturing production index of steel consumption produced by Commodity Insights stood at 122 points for June, up from 109 in May and 119 a year earlier.

The production index is based on production data from China's National Bureau of Statistics for 18 steel-related manufactured goods, categorized into seven sectors and weighted according to their share of steel consumption. Average monthly production in 2018 is used as the baseline of 100.

In June, manufacturing of vehicles, shipbuilding, home appliances, containers, power generation and railway facilities sectors posted a year-on-year increase, while only machineries recorded a slight decline, according to the NBS data.

The weakness in machinery manufacturing mainly stemmed from a fall in production of cement-making machines, which was down 49% on the year in June, indicating weakness in the construction sector had continued.

China's excavator production in June increased by 22% on the year. Some sources said the excavator output rebound was mainly due to a low base factor in 2023 after sustained declines since mid-2021, adding it could also suggest the adverse impact from slumping property sector on engineering machineries had largely diminished.

Strong exports

"Domestic consumption recovery has remained very slow due to slowed economic growth, so I believe exports will remain the main driver of manufacturing production and its steel demand in the second half of the year," said a trade source.

While the production of vehicle, shipbuilding and home appliances in June increased by 1.8%, 2.3% and 2.5% on the year, their export volumes in June were up by 18.3%, 25% and 29.7% on the year, respectively, according to data from the NBS and China Customs.

"Given rising global trading disputes, any further growth in exports of China's manufactured goods could be limited in the coming months, but at least the current export momentum should be maintained in 2024," said a mill source.

He added the key problem for flat steel market remained to be rapid growth of flat steel production.

Flat steel output and capacity

Healthy manufacturing steel demand has led to a quick rise in flat steel production so far in 2024.

Production of medium-thick hot rolled coil and cold rolled sheet, proxies of flat steel products, increased by 3.4% and 3.9%, respectively, year on year in June, to 19.02 million mt and 4.09 million mt, according to the NBS data.

Over January-June, the production of medium-thick hot rolled coil and cold rolled sheet increased by 5.5% and 15.9%, respectively, on the year to 109.13 million mt and 23.43 million mt.

However, some trading sources said China's flat steel production, especially HRC output, might continue upwards in the second half of 2024 as a result of expanding capacity, continuing to undermine market momentum.

Within the first half of 2024, four new hot strip mills have been commissioned with a total capacity of about 14 million mt/year, according to calculations by S&P Global Commodity Insights based on data from market sources and company announcements.

For the rest of 2024, some 11 new hot strip mills are waiting to be commissioned with a total capacity of around 25.8 million mt/year.