Chinese steel prices buck the global trend

28th March 2022

European steel transaction values are soaring, during the military conflict in Ukraine. The recent downward trend in the US steel market has been reversed. However, Chinese prices are stagnating, despite rising raw material costs.

Covid-19 cases are increasing, once again, in many Chinese cities and provinces. Millions of people have been placed into new lockdowns. Despite governments in most other countries beginning to lift their restrictions and abandon any low or zero-Covid policies, China has yet to follow suit. This is having a negative effect on domestic steel demand and prices.

Mass testing of truck drivers is creating transport bottlenecks. Ports are also getting extremely congested, as lockdowns prevent or delay vessels from docking. Consequently, the country’s supply chain is slowly grinding to a halt.

Movement of labour is being severely curtailed, reducing the available workforce in many steel-consuming sectors. Many factories are either fully or partially closed, with some planning to run as isolated bubbles, in an attempt to continue their operations. A number of construction sites are also closing.

Consequently, steel inventories in the Chinese market are rising again. Stock levels had previously started to fall as demand recovered, albeit moderately, following the conclusion of the Beijing Winter Olympic Games. Steel production has also been climbing in the past two weeks.

Traders are looking to increase their export volumes to offset the loss in domestic shipments. As a result, they are offering competitively into the global steel market. This increased focus on overseas sales has led to a renewed concern about the potential introduction of export taxes, previously mooted in 2021 but never implemented.

Nevertheless, with many third country customers scrambling to replace volumes previously sourced from Russia and Ukraine, buyers may be willing to take the risk of their material incurring this prospective charge, when their order is finally shipped.

Steel mills in Western nations are, as yet, unconcerned that the negative sentiment in China could filter through to other markets. High shipping costs and delays in material arriving are likely to be a deterrent to purchasing imports for many buyers in Europe and North America, despite the growing price gap.

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