A Short-term Rebound Expected in Steel Industry
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
Both BaoSteel and Ansteel have raised their domestic steel plate prices for June. Quickly falling inventory levels at distributors and steelmakers, expectations for a resumption in economic activity, and the introduction of government stimulus measures served as the backdrop for the price hikes.
Baosteel and Ansteel lift domestic plate prices for first time in three months
China’s leading steelmakers Baosteel (600019.SH) and Ansteel (000898.SZ) have raised their domestic prices for June. In detail, Baosteel has increased its HR and plate prices by RMB50/ton and RMB100/ton, respectively, while freezing its CR price. Meanwhile, Ansteel has lifted its HR and CR prices each by RMB100/ton and its plate price by RMB50/ton. While Shagang (002075.SZ) has yet to announce June prices, we note that the firm kept its domestic prices flat over late March~mid-May.
Baosteel and Ansteel have frozen or lowered their plate prices since March, but with expectations growing that China’s steel market will recover in 2H20, the decision was made to hike prices for June. In May, China’s domestic steel prices stopped falling and rebounded slightly. While overall distribution inventory remains high compared to last year (+49% y-y), the accelerating decline is another reason for the price increases.
Short-term rebound expected on turnaround of downstream industries and policy measures
Entering May, China’s domestic HR price has risen 2.7%, while its CR, rebar, and plate prices have climbed 2.1%, 1.8%, and 1.5%, respectively. Meanwhile, iron ore prices increased to US$87.3/ton on May 8, marking the highest level since Mar 19. Resumed operations in downstream industries, accelerated infrastructure investment to stimulate the economy, and expectations for the Two Sessions scheduled for May 21 are the main drivers behind the rebound in steel product and iron ore prices.
Noting China’s falling distribution inventory, we expect to see a short-term rebound in the steel industry as the impact of Covid-19 fades and policy expectations build. However, it is difficult to forecast a rapid improvement in steel demand, as a low season is approaching and recessionary concerns persist due to the coronavirus outbreak. A rebound in iron ore prices, which stood at US$86.3/ton as of May 11, will also put a strain on steelmakers’ performance improvement.