WEBINAR: China’s rebar consumption recovery ‘extraordinary’; bright spots remain for stainless steel – panel

The recovery in Chinese steel consumption, especially that for rebar, has been “extraordinary”, while the downturn in the automotive sector may not necessarily mean stainless steel demand will decline this year, delegates heard at Fastmarkets’ Covid-19 and Asian ferro-alloys markets webinar on Tuesday June 30.

In the final poll of the webinar, regarding which downstream sector is most likely to aid in the recovery of the Chinese steel market, 60% of respondents voted for infrastructure while 31% voted for construction. By contrast, the automotive, domestic appliances and mechanical engineering each received 2.9% of the vote.

‘Extraordinary’ recovery
An infrastructure spending plan introduced by China early this year may generate steel and ferro-alloys demand more quickly than usual, Fastmarkets’ head of research Alistair Ramsay told delegates.

“The recovery since March has been so extraordinary, and it is increasingly realistic that there will be a recovery in the consumption of rebar, which will be triggered by infrastructure spending,” Ramsay said.

Xinchuang Li, the president and chief engineer of the China Metallurgical Industry Planning & Research Institute, agreed with Ramsay that infrastructure spending will help revive China’s steel market more quickly than people previously expected, citing growth in the country’s steel production and imports.

Chinese steel production increased by 1.9% year on year in the first five months of the year and accounted for 55% of global production - this at a time when production in other countries decreased by more than 10%. Chinese steel imports increased by around 14% year on year in January-May, according to Li.

“These are interesting figures, showing the China market is better than we previously expected,” Li said.

“There are a few areas including railways, highways, water conservancy projects, which are supporting the steel market,” he added.

Stainless steel demand to remain firm despite auto sector decline
Among the traditional downstream sectors for steel, the automotive sector has encountered a tremendously challenging backdrop with sales declining last year and so far this year, Li told delegates.

Chinese automotive sales fell by 22.6% year on year to 7.96 million units in the first five months of 2020, according to China Association of Automobile Manufacturers. Sales in Europe declined at an even quicker pace, with a 41.5% year-on-year drop over the same comparison, according to data from the European Automotive Manufacturers Association.

The Chinese government’s auto-related restrictions, including the limiting of issuing new car licenses, have dented consumers’ appetite for traditional internal combustion engine (ICE) vehicles, Li said.

In addition, Li pointed out that people’s way of life has changed drastically following Covid-19, leading more people to be less dependent on automobiles.

“For this year, sales of automobiles will decrease, therefore the demand for related steel products will also decline,” Li said, adding that the adoption of electric vehicles (EVs) might be a further headwind.

But the expected decline in auto sales might not be a strong enough driver to dampen demand for stainless steel and related ferro-alloys; instead, stainless steel demand and prices are likely to remain stable or even rise slightly, Vijay Kumar Singh, the country head & director of ISPAT Group told the delegates.

Singh told delegates that nickel prices are a critical factor when discussing stainless steel consumption.

Fears over a shortage of nickel and chrome may increase stainless steel consumption since companies on the supply chain might look to stockpile the finished stainless steel products in light of potential production cuts as a result of raw materials supply constraints, Singh noted.

In an earlier poll during the panel discussion, most respondents said chrome ore is most prone to disrupted supply or limited availability during 2020-2021.

From late March through April amid a nationwide lockdown of South Africa, the largest supplier for chrome ore, fears over supply disruptions translated into a surge in chrome ore prices.

Fastmarkets’ chrome ore South Africa UG2 concentrates index basis 42%, cif China stood at $147 per tonne on April 24, the final calculation of that month, to show a total gain of $33 per tonne (29%) from $114 per tonne on April 3. But prices began to falter in early June and were last assessed at $153 per tonne on July 3.

Nickel prices similarly have generally trended upward since start of April, with intermittent dips. The nickel three-month daily official price on the London Metal Exchange was at $13,308 per tonne on July 6, up by 2.3% from $13,010 per tonne on June 8.

Regarding the threat of EVs to the more traditional ICE vehicles, Singh downplayed the negative impact of increasing EV adoption on stainless steel consumption because the automotive sector only accounts for a small proportion of stainless steel usage downstream.

In the next few years, there is not much change seen in the downstream sectors for stainless steel. EVs may be a headwind for automotive and stainless steel, but demand from infrastructure and construction should remain firm, according to Singh.

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