Forecasts China steel market trends in 2018

Forecasts China steel market trends in 2018

China steel market has achieved many achievements this year, support very well for the world steel market. By shutting down small, backward, and illegally polluting steel production facilities, China is in the process of restructuring the steel industry, bringing a new face on the world market. Many experts have suggested that the upcoming “black swan” event in China may be due to the fact that the country has been transformed from a plentiful exporter to an importer. Could this open the potential picture for next year?

Market summary in 2017

Chinese steel prices rose sharply, especially after the closure of the induction furnace at the end of June to remove more than 100 million tons of steel in the market and the policy to reduce production of anti-dust in winter from mid-November. With the focus on air pollution, steel restructuring, the government has shut down backward facilities as well as demanding the northern region to cut capacity. This prompted the spot price of steel for immediate delivery to a nine-year high this year, with profits for rebar mill at $ 190/tons, continuing to surpass the HRC. Accordingly, export prices of these items also increased sharply, over $ 600 per ton.

Good domestic consumption this year is fueled by an increase in investment costs for government infrastructure projects ahead of the 19th National Assembly meeting. Economic growth also exceeds projections, combined with a fall in supply has brought good growth for the Chinese steel market.


Market Outlook for 2018

China is still in the process of restructuring the steel industry by 2020, with a target set in 2016. It is also the first term of the new administration after the 19th Party Congress so the government will continue to boost economic growth, increasing investment in infrastructure, promoting steel consumption.

The Chinese government is promoting a policy of reducing winter production (15/11 / 2017-15 / 3/2018), whereby the supply of steel in the first months of the year decreased. In 2018, large-scale mergers and acquisitions of steel companies could also take place to boost capital, to rein in the steel industry.

Prices of raw materials such as coal, steel, nickel, (except iron ore) could continue to grow this year based on tight supply, continue to support prices.


In December 2017, the Ministry of Finance announced the reduction of export taxes on some wire and rod products from January 1, 2018. Export tax on stainless steel will drop to 5% from 10%, while billet tax will be 10%, down from 15% today. Reduced tariffs create conditions for Chinese steelmakers to increase their competitiveness in overseas markets, reduce domestic supply pressures and clear up domestic prices.

China has taken a policy of reducing production this winter, prompting steel prices to rise sharply, effectively for the market. Therefore, the government may repeat this policy in the winter of 2018 to further promote the steel industry.

Having finished the policy of reducing winter production early next year, Chinese factories will start boosting production again for profit. China is stepping up production of the EAF to boost profits and take advantage of cheap surplus scrap supplies after the induction ovens are scrapped. The plants also have experienced after the suspension period in 2017, so they will upgrade their air treatment systems in accordance with environmental standards, which, if applied to reduce production, will also be reduced small


The Trump government is very protective of the domestic industry through strict tariffs and quotas, especially for China (the world’s largest steelmaker). On Dec. 5, the US Department of Commerce also ruled on the imposition of extremely high tariffs on steel imports from Vietnam originating from China, after the discovery of Chinese steel manufacturers have been evading the Anti-dumping and anti-subsidy orders of the United States. Final rates are expected to be announced on February 16. In addition to the United States, China is also targeting anti-dumping duty in the EU, Asia, etc. This is a challenge that China will continue to face huge domestic production.

China is also facing increasing competition in its export markets, especially in Asia as it increasingly attracts other producers with more competitive prices. In 2017, the return of Indian steel exports to Asia as well as Saudi Arabian plants has begun to make visits to be ready for sale. Keeping prices too high may cause Chinese factories to lose market share in the region.


2018 Market Forecast

Chinese steel prices in the first half of 2018 will continue to fluctuate based on control policies as well as demand stimulus from the Government. However, prices will not climb too much this year as China is tightening control over bad debts, credit as well as real estate market cooled.

Chinese steel consumption will continue to grow in the first month of the year as traders increase their purchases to stockpile materials before the holiday season begins. Meanwhile, the decrease in steel supply based on the winter policy could lead to a shortage of raw materials, the increase in raw material prices will help China’s domestic steel prices continue to grow, supports the increase in export prices about 20 USD / ton. Bars continued to outperform HRC as a result of higher consumption from the construction industry as well as a weaker supply. As a result, prices may fluctuate between $ 590-610 / ton FOB and HRC $ 580-590 / ton FOB.

After that, purchasing power will gradually weaken in February due to the Tet holiday, severe cold weather hampers construction activities, drag prices down until the end of March, early April. At the same time, the supply of steel also decreased so the price did not sink too deep. The decrease in 2 months is about 20-30 USD / ton.

The warmer weather from the end of March will promote construction projects, pulling buyers back to order. Prices are also gradually recovering. High-profit margins, however, will prompt manufacturers to increase capacity to make profits after completing a winter production cut in mid-March, which could hinder steel price rises in the coming months. That, led to prices began to fluctuate. Steel consumption in May-June normally weakened due to heavy rain, hot weather. Price fluctuations and forecast fall into the range $ 570-580 / ton FOB by the end of Q2.

Chinese crude steel output hit a record this year and may continue high next year, due to the Chinese government is boosting infrastructure investment, pushing demand for construction goods.

In 2017, spot prices fell to $ 90/tons in February thanks to rising steel prices, prompting factories to increase capacity. However, the policy of reducing production to March next year will reduce the consumption of ore, dragging down prices to below $ 60 per ton in the first months of the year.

Ore supply is also beginning to rise, while Chinese mills are preferring more economical, more efficient scrapping, which could exacerbate excess supply at the port. Therefore, prices in the first months of the year may be down to $ 55 per ton before recovering around $ 60 per tons in Q2.

Source: satthep & MRS team