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Market weakness is hard to return
The domestic steel market continued to decline last week, with prices falling further and the downward trend intensifying. While a few areas in northern China saw slight price increases due to better trading activity, most steel products across the country experienced widespread declines. With weak demand, ongoing pressure from raw material prices, and financial strains, both forward and spot prices hit new lows since 2013, with no signs of stabilization yet. Market sentiment has turned increasingly pessimistic, as traders are actively cutting prices to move inventory.
In Shanghai, steel prices dropped significantly over the past week. Rebar prices fell by RMB 100 per ton, with mainstream prices for three-grade rebars in Xicheng and Rizhao ranging between RMB 3,330–3,350 per ton. Hot-rolled coil prices dropped by RMB 90 per ton, with popular brands like Rizhao and Shagang quoted at 3,450–3,480 yuan per ton. Cold-rolled coil prices also fell by RMB 80 per ton, with Wuhan Iron & Steel and Benxi’s cold-rolled products quoted at 4,480–4,500 yuan per ton.
Several key factors have contributed to this sharp decline in steel prices:
First, demand for steel products has weakened. The real estate, automotive, and construction machinery sectors have been sluggish since the start of the year, directly impacting steel prices. Recent economic data shows that recovery is unlikely in the short term, which will continue to suppress steel demand. According to HSBC’s May manufacturing PMI, the initial reading was 49.6, below the 50 threshold and the lowest in seven months. This indicates weak domestic and external demand, increasing downside risks for the second quarter. As temperatures rise and the southern rainy season begins, steel demand is expected to shrink further, forcing traders to compete on price just to secure sales.
Second, raw material prices have continued to fall. As of the 24th, the ex-factory price of 66% iron ore in Tangshan dropped to 800–830 yuan per ton, down 20 yuan from the previous week. In Qingdao, 63.5% iron ore was priced at 915–925 yuan per wet ton, down 15 yuan. Similarly, 63% Brazilian ore at Beilun port fell to 915–925 yuan per wet ton, down 20 yuan. Steel mills are reducing inventories, and transaction volumes remain weak. Additionally, carbon billet prices in Tangshan dropped to 3,060 yuan per ton, while 20MnSi billets fell to 3,180 yuan per ton, down 20 yuan from the previous week. The rapid drop in raw materials has significantly weakened cost support, and without improved downstream demand, market sentiment remains bleak.
Third, there has been little progress in reducing steel production. Although many steel mills have announced maintenance plans, official data shows that crude steel output remains high. In May, the daily output of key large and medium-sized steel companies rose by 2.71% compared to the previous month, reaching a record high. This suggests that production cuts have not been significant enough to ease market pressure. Under weak demand conditions, steel mills are not cutting production effectively, leading to continued oversupply and downward pressure on prices.
Fourth, financial pressures are mounting. Prolonged price declines have led to losses across the industry, with traders facing tight capital chains and some nearing the breaking point. Maintaining low inventory levels has become the norm, reducing the role of traders as market stabilizers. This has led to reduced trade activity and increased financial strain. As the month ends, traders are forced to cut prices further to recover cash and prepare for next month’s orders.
Overall, with no immediate improvement in demand, combined with high inventory and financial pressures, along with falling raw material prices, the steel market is under intense downward pressure. Traders and producers alike are bracing for more price declines in the near future.