Homeowners of steel plants in parts of China are in a bad mood, said Simon Wu, a Beijing-based commodity consultant.
Steel stocks are slowly piling up in warehouses in the country’s largest metallurgical center, tangshan city in the country’s northeast, as well as in Jiangsu and Shandong provinces, factory owners told Wu, a senior representative at Wood Mackenzie.
Demand for metal is falling amid pandemic shutdowns and stalled activity, they said.
“There is negative power everywhere. The metal industry just doesn’t make a profit,” Wu said.
Much of the metal, an uncooked key piece at the production power plant, is not used nationwide amid a shutdown and start-up economy that is driving down demand and prices.
Prices for the metal and its main ingredient, iron ore, were volatile during the Shanghai shutdown but headed for a downward trajectory earlier this month.
Weak steel demand, an indicator of China’s economy, also reflects the country’s overall slowdown, with recent knowledge pointing to some improvement, with trade output slightly above 0. 7% in May from a year earlier.
Fundamentally, China’s metallurgical industry, the world’s largest, is home to vast supply chains stretching from Chinese blast furnaces to iron ore mines in Australia and Brazil, the largest suppliers of iron ore to China.
For this reason, any unrest in China can get to the bottom of a vast network of supply chains, which can exacerbate pressures on existing global disruptions.
According to the Iron and Steel Association of China, daily domestic production of intermediate metal products, such as crude metal and pig iron, as well as finished products, increased in the month of May by between 1% and 3%. On the other hand, demand, although still active, had fallen.
China’s crude metal consumption, for example, fell 14% in May from last year, said Niki Wang, S’s director of iron ore.
“The metal’s year-on-year decline demands much more than crude metal production. In this case, metal generators are in trouble (with strain on metal prices),” he said.
This coincided with China’s largest citywide pandemic shutdown in Shanghai.
As a result, stock levels are 12 percent higher than last year and may take only about two months to fall to the average levels of the past five years, assuming demand for metals comes back to life, said Richard Lu, a metals research analyst at Cru Group.
The Chinese market is also competing with a proliferation of less expensive Russian semi-finished metal billets, said Paul Lim, senior analyst of uncooked ferrous fabrics and metal in Asia at Fastmarketplaces Asia.
As outbreaks have gripped the country, the country’s largest metal consumers, as well as drivers of China’s expanding economy, such as housing structure and infrastructure progress, have fallen silent, Navigate Commodities lead executive Atilla Widnell said.
That’s because “there’s just no one painting on the sites,” he added, noting that the industry surprised with the return of closures.
After a long-awaited opening in Shanghai in early June after new ones were registered in Beijing and Shanghai, China has begun to reimpose some restrictions.
Last week, new data from China’s National Bureau of Statistics showed that real estate investment during the first five months of the year fell four times from a year earlier, up from a 2. 7 drop between January and April.
Home sales by volume fell by 34. 5% year-on-year in the first months of 2022.
“There were life-threatening symptoms for domestic metal consumption after China exited lockdowns in early June, but ‘stop and start’ disruptions through a relapse into scattered blockades [were] an unwanted blow to the country’s well-intentioned economic recovery,” Widnell said.
Even as metal costs fell and eroded the profitability of the metallurgical industry, metallurgical plant owners continued production, with much lower-quality iron ore to produce smaller volumes.
China’s blast furnaces are now operating at near full capacity, at more than 90%, the highest rate in thirteen months, despite lower profits, analysts said.
Some factories suffered “largely negative margins” in April and May.
Price awareness shows that the costs of popular metal products, such as rebar and hot-rolled coils used for home construction, fell by about 30% after peaking around May last year following a commercial recovery to bring the economy to life.
Shutting down blast furnaces can be inefficient, as the giant reactors used to convert iron ore into liquid metal will have to operate continuously.
Once they are closed, it takes a while, up to six months, to restart operations.
“Therefore, Chinese operators keep their blast furnaces ‘hot’ by employing lower quality minerals to voluntarily decrease yields in the hope that they can increase and meet the recovery in demand for metals as transitory locks are lifted,” Widnell said.
“We, those operators, are also generating larger quantities of semi-finished metal products so as not to overload the costs of the finished metal with inflated inventories. “
Wood Mackenzie’s Wu said the explanation for why manufacturers persist is that they can meet their allowable annual production targets before Beijing cuts them next year as part of an effort to meet its emissions targets through 2030 and 2060.
“Each year’s production is explained through last year’s production. Therefore, manufacturers are interested in producing the maximum amount of metal per year, as discounts will be implemented on that year’s production,” Wu said.
Steel demanded and fell between 2012 and 2016 after the sharp slowdown in the Chinese economy, which caused a fall in commoditiesArray
For many miners serving In China, such as those in Australia, this is the end of the so-called mining boom.
In 2015 alone, China’s top metal suffered losses of more than 50 billion yuan.
For starters, this recession is like 2015, Wu said, and metalmakers have learned to cope with volatility.
“So they will continue to produce metal because they have to pay wages and other flows of money. Many manufacturers can probably last two years without making money. Many other people outside [Of China] don’t perceive this resilience,” he said. Said. .
CRU’s Lu said that while some factories were slowing production, stock levels are “a far cry from panic levels” and garage capacity is not yet a serious issue.
However, there are symptoms of caution that the industry is beginning to adapt to those adverse conditions.
Recently, rumors have been circulating that the Jiangsu provincial government has asked local metal generators to reduce production by about 3. 32 million during the rest of the year.
It is unclear whether this is an effort to reduce stocks of higher metals or a broader participation to reduce production and emissions.
“I China is fully aware of the weakness in domestic demand for metal this year and will use executive power to force factories to cut production as it has done before,” said Alex Reynolds, an analyst at commodity and energy pricing firm Argus. Media.
“If metal costs continue to fall sharply and losses spread, the Chinese government can set accurate numbers for production cuts, much like what OPEC did when Covid peaked in 2020-2021. “
Wang of S
Meanwhile, other players in the metals source chain, such as Australian and Brazilian iron ore miners, want to worry for now, as declining mining production has offset falling demand, he said.
However, miners are involved in bearish situations in China, Wang added.
“Higher pig iron production than iron ore demand is strong. Iron ore inventories in China’s major ports have tended to decline since the Chinese Lunar New Year holiday,” he said.
Iron ore costs have ranged from $130 to $150 per ton over the past two months, compared to costs as low as $30 to $40 per ton during the 2012-2016 crisis.
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