China's steel sector purchasing managers index (PMI) rose by 3.7 points to 45.9 in April on the back of reviving market demand, a significant increase in steel production and stronger raw material supply availability.
Market demand is expected to continue improving in the second quarter, but an oversupply in the steel market is anticipated for the short term, according to the China Steel Logistics Professionals Committee (CSLPC), which compiles the index.
While the rate of resumption of construction and manufacturing increased in April, key projects and infrastructural investment have yet to start, leading to a relatively low recovery rate. The Covid-19 pandemic has also hurt demand for Chinese steel exports, pushing the index for new export orders to 27.8 and keeping it below 30 for the past two months.
Of the 191 steelmakers monitored by China Iron and Steel Association, 178 are in production at a resumption rate of 93.2pc, pushing up the production index to 53.4 in April by 14.1 points on the month. The cumulative average daily output of key steel companies in China stands at 1.94mn t/d, up by 6.51pc on the month, the association's data show.
Production and delivery of raw materials rose in April, with the purchasing volume index at 48.8, up by 7.3 points from March. The raw material inventory index, at 38.3 in April, was down by 6.6 points from the previous month, while the supplier delivery time index, at 52.7, increased by 5.9 points from March.
The oversupply of steel has put pressure on prices in April, CSLPC said. The daily Argus-assessed Shanghai domestic hot-rolled coil price has ended April at 3,290 yuan/t, up from Yn3,190/t at the start of this month but down from this month's high of Yn3,330/t.
Steel production is expected to resume and accelerate, while national and regional policies, as well as infrastructural work, are anticipated to support a continued recovery in steel demand, CSLPC said. But weakness in the housing construction sector may weigh on steel demand.
Daily crude steel production in China is estimated to reach 2.61mn t in mid-April, up by 2.4pc from the daily output in the whole of March, CISA data shows. At the same time, steel mill inventories exceeded 17.42mn t. While domestic demand has improved, it still has not returned to normal levels. Lower demand outside of China has also put pressure on Chinese steel exports. As a result, it will be difficult for the oversupplied steel market to ease and for output to increase significantly in the second quarter, CSLPC said.
The committee also raised concerns that port and transportation restrictions at major iron ore-producing countries are affecting production and adding to costs, consequently pushing up prices.
