In May, the domestic steel market failed to bring any hope of stabilization. Instead, it continued the downward trend from April, with prices consistently falling. The overall performance was marked by a steady decline, and the gap between spot and futures prices widened further. Many regions experienced sharp drops, as steel mills cut ex-factory prices in an attempt to boost sales. Traders, facing losses, were forced to withdraw funds, reduce inventory, and slash prices aggressively. Market panic grew, and pessimism spread across the industry, leading to light trading activity and expectations of further deterioration.
According to data monitoring, as of May 31, the mainstream price for 22*9 third-grade rebar in the Xicheng area of Shanghai was 3,170 yuan/ton, down 310 yuan/ton from the previous month. The average offer for 5.5*1500 carbon hot coils in the sunshine production market was 3,370 yuan/ton, a drop of 320 yuan/ton compared to the same period last month. Meanwhile, the mainstream price for 1.0*1250 cold plates from WISCO was 4,440 yuan/ton, down 230 yuan/ton from the previous month. All major steel products saw significant declines, and the market showed no clear signs of stabilization, with prices expected to continue falling.
The author identifies several key factors behind the May price decline:
First, the macroeconomic slowdown has led to weaker steel demand than expected. In the first four months of 2013, China's economic growth slowed significantly, well below initial projections. Real estate, infrastructure, home appliances, and automotive industries all saw reduced investment, while weak global demand caused a sharp drop in exports. This led to a significant decline in raw material demand, slowing the destocking process and keeping the steel spot market in a downturn.
Second, crude steel output reached record highs, increasing supply pressure. Although daily crude steel output from key enterprises declined slightly in mid-May, the reduction was minimal. Steel mills are still reluctant to cut production due to falling raw material costs, which have reduced production expenses. As a result, steel mills are not cutting output quickly enough to ease supply pressures.
Third, confidence in the steel trade market is low, and price cuts have become the norm. With insufficient macroeconomic policy support, the steel market lacks optimism. Traders are struggling to sell, orders are declining, and most are focusing on clearing inventory rather than maintaining prices. This has created a cycle where falling prices lead to more selling, further pressuring the market.
Looking ahead to June, three main factors will shape the steel market:
1. Seasonal demand is unlikely to recover. While May saw a slight increase in terminal demand compared to April, it was not enough to offset rising supply. With the arrival of summer, demand is expected to weaken again. Without strong government stimulus, steel demand in June will remain sluggish.
2. Production cuts by steel mills are ineffective, and supply-demand imbalances persist. Steel mills have repeatedly avoided reducing output, as prices have not fallen below their marginal cost. This means that production cuts will be slow, and supply pressures will continue to weigh on prices.
3. Raw material prices may stabilize or even rebound. After a prolonged decline, iron ore and billet prices hit a three-year low. However, steel mills may begin replenishing stocks soon, leading to a potential stabilization in the raw material market.
In conclusion, with the onset of summer and weak macroeconomic conditions, the steel market is entering a season of declining demand. With limited policy support and ongoing supply pressures, the market is likely to remain weak, continuing its volatile downward trend in the coming months.
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