China's steel market is expected to see improved fundamentals in February, with low stock levels and tightening supply providing support to the market after the Chinese New Year (CNY) holiday, according to Mysteel's chief analyst, Wang Jianhua, in his latest monthly outlook.
The main factors driving the weak and volatile steel prices in China in February are as follows:
Firstly, the atmosphere of tariff increases since Trump's return has affected expectations for Chinese exports. On January 20, 2025, Trump was sworn in as the 47th US President, announcing plans to revoke electric vehicle subsidies, reform the trade system, boost strategic oil reserves, export US energy, and impose tariffs on foreign goods. Institutions like Goldman Sachs and HSBC believe these policies will impact global economic growth and market stability. On January 21st, Trump mentioned discussing a 10% tariff on Chinese imports from February 1st, with reports of a potential 25% tariff.
Secondly, due to the Spring Festival and seasonal factors, domestic demand is weak. As the festival approaches, the steel market has slowed down, with transactions decreasing. According to Lange Steel, daily construction steel sales in 20 key cities dropped by 84,000 tons from the month's start to 46,000 tons on January 21st. Similar declines were seen in hot-rolled steel and medium/heavy plates. Transaction volumes are expected to continue decreasing, with a gradual recovery post-festival, but overall demand will remain low.
Thirdly, the supply side has rebounded, leading to further inventory accumulation. Since January, improved profitability of some steel products has kept steel companies' production willingness high. According to Lange Steel, the average blast furnace operating rate of 100 small and medium-sized steel firms was 75.3% in January, down 0.2% from the previous month, while the daily molten iron output of 201 producers increased by 55,800 tons. Large and medium-sized steel producers also saw a rebound in production. The China Iron and Steel Association reported a 2.0% month-on-month and 2.3% year-on-year increase in daily crude steel output from key steel companies in early January 2025. Considering the Spring Festival, a high base effect, and thin profits, domestic steel production may rise month-on-month but fall year-on-year in Jan-Feb, with an estimated daily crude steel output of around 2.5 million tons.