Strong car export growth cushions Chinese steel demand amid domestic slowdown

China's booming automobile export growth largely cushioned the impact of slumping local demand in automotive manufacturing and steel consumption in July, though abundant cold-rolled coil supply continued to cap price gains as steelmakers shifted production away from construction materials toward flat products.

China's passenger car retail sales, a key indicator of consumer goods consumption, were estimated at 1.506 million units in July, down 6% from June and 18.3% from a year earlier, according to data released by the China Passenger Car Association (CPCA) on Aug. 5.

Over January-July, domestic passenger car retail sales fell 20% year over year to 10.207 million units, according to CPCA data.

The association said that intense price competition in the auto market during the first half of the year had pulled forward demand, leaving insufficient consumer appetite for car purchases in the domestic market at the moment.

In contrast, China's automobile exports continued to post strong gains. Exports rose 57.4% year over year to 1.092 million units in July, bringing total exports in January-July to 6.4 million units, up 53.7% from the same period last year, according to the latest data from China Customs.

The strong growth momentum of the automobile exports is expected to continue and should largely offset the weakness in domestic sales, a mill source said.

The source added that demand for CRC from the automotive manufacturing sector is likely to see a seasonal recovery starting in late August.

"The issue is that CRC supply remains too strong compared with demand, making it difficult for CRC prices to gain upward traction," the source said.

The source noted that, in recent years, many Chinese steelmakers have sharply reduced output of construction steel products, particularly rebar, due to the prolonged downturn in the property sector. Instead, more crude steel output has been shifted toward flat steel products, where demand has continued to grow.

"As a result, even though end-user demand for products such as CRC remains resilient, the increase in supply has largely offset that demand growth," the source said.

China's cold-rolled sheet production rose 13.5% year over year to 4.545 million metric tons in June, according to data from the National Bureau of Statistics.

The CRC output during the seasonal demand lull from July through August so far has declined only modestly from June's level, a mill source, a trader and a steel industry analyst said.

Consequently, CRC inventories at major spot markets monitored by the China Iron and Steel Association (CISA) reached 1.39 million mt as of July 31, up about 11.2% from a year earlier, according to CISA data.

Another mill source said not just CRC, but overall steel supply remains relatively abundant relative to demand, limiting the upside for steel prices. But the source added that with the seasonal demand peak set to begin in late August, the market also lacks strong downside momentum at this stage.

"The market lacks both strong upward and downward drivers at the moment," the source said. "Prices are likely to continue fluctuating within a narrow range at relatively low levels."

Platts, part of S&P Global Energy, assessed the Chinese domestic CRC at 3,650 yuan/metric ton ($541/mt) on Aug. 4, down 40 yuan/mt from late July and 230 yuan/mt lower from a year ago.