China steel prices drop sharply week over week: BofA

Investing.com -- China's steel market has seen a major price decline last week, as per analysts from BofA Securities. Steel export prices from China fell sharply, with hot rolled coil (HRC) dropping by $31 per ton to $449 per ton, and rebar prices decreasing by $28 per ton to $462 per ton. 

This price reduction reflects the ongoing challenges faced by the Chinese steel industry, exacerbated by weak demand and economic headwinds.

As per BofA analysts, the cash margins for Chinese steel producers have shown mixed results. While spot cash margins for rebar improved slightly by RMB35 per ton, they remain in negative territory at -RMB45 per ton. 

Conversely, HRC margins worsened, dropping by RMB112 per ton to -RMB23 per ton. The situation has prompted many steelmakers to initiate voluntary production cuts, leading to a decrease in both blast furnace (BF) and electric arc furnace (EAF) utilization rates. 

The BF capacity utilization rate among the 247 steel producers tracked by Mysteel dropped by 110 basis points to 85.92% between August 9th and 15th. The broader market sentiment remains bearish, as highlighted by Hu Wangming,

Chairman of China Baowu Steel Group, who described the current conditions in the Chinese steel sector as a "harsh Winter" that could be "longer, colder and more difficult to endure than we expected."

“Ongoing weak steel demand unlikely to change in 2024-25,” the analysts said. This is largely due to a severely depressed property market, which accounted for approximately 29% of China's steel demand in 2023. 

New construction starts have plummeted by 52% from their peak in 2021, and the trend continued with a 24% year-over-year decline in the first half of 2024. The ongoing weakness in infrastructure investment further compounds the problem, as key projects are nearing completion and there are few new initiatives on the horizon.

In light of these factors, the outlook for China's steel sector remains challenging, with continued pressure on prices and profitability expected in the near to medium term. BofA analysts suggest that unless there is a significant turnaround in demand, the steel industry in China may continue to struggle with low prices and reduced margins well into 2025.