China's steel mill owners in bad mood as demand takes a hit

Steel mill owners in parts of China are in a bad mood, Beijing-based commodities consultant Simon Wu said, reports CNBC.
Steel inventories are slowly piling up in the warehouses of the country's biggest steelmaking hub, the northeastern city of Tangshan, as well as in the provinces of Jiangsu and Shandong, mill owners told Wu, a senior consultant at Wood Mackenzie.
Demand for steel is falling amid pandemic lockdowns and crippled construction activity, they said.
"There's negative energy all round. The steel industry is just not making any profit," Wu said.
A lot of steel -- a key raw material in the manufacturing powerhouse -- is sitting idle around the country amid a stop-and-start economy which is forcing down demand and prices.
Prices of both steel and its main ingredient iron ore were volatile during the Shanghai lockdown but headed on a downward trajectory earlier this month.
Weak demand for steel, a bellwether of China's economy, also reflected the country's broader slowdown, though recent data pointed to some improvement as industrial production rose slightly by 0.7 per cent in May from a year ago.
Crucially, China's steelmaking industry -- the biggest in the world -- hosts extensive supply chains that stretch from Chinese blast furnaces to overseas iron ore mines in Australia and Brazil, the biggest suppliers of iron ore to China.
Because of that, any jitters within China can unravel an extensive network of supply chains, potentially heaping further pressures on existing global disruptions.
According to the China Iron and Steel Association, national daily outputs of intermediary steel products such as crude steel and pig iron as well as finished goods had been rising over the month of May by between about 1 per cent and 3 per cent. In contrast, demand, while still active, had fallen.
China's consumption of crude steel, for instance, fell 14 per cent in May compared with last year, S&P Global Commodity Insights iron ore lead Niki Wang said, citing in-house analyses.
"The year-on-year decline in steel demand was much greater than that of crude steel production. In that case, steel mills are indeed struggling (with the pressure on steel prices)," she said.
That period coincided with China's biggest citywide pandemic lockdown yet in Shanghai.
Consequently, inventory levels are 12 per cent higher compared with last year and may take nearly two months to fall to the median levels of the past five years, assuming steel demand roars back to life, said Richard Lu, steel research analyst at CRU Group.
The Chinese market is also competing with a proliferation of cheaper Russian semi-finished steel billets, said Paul Lim, lead analyst of Asia ferrous raw materials and steel at Fastmarkets Asia.
As outbreaks gripped the nation, the country's biggest consumers of steels as well as the Chinese economy's growth engines such as property construction and infrastructure development have gone quiet, said Navigate Commodities managing director Atilla Widnell.
That's because "there is simply no one to work at the sites," he added, pointing out the industry was taken aback by the return of lockdowns.
After a much-awaited opening of Shanghai in early June after new cases were recorded for both Beijing and Shanghai, China started re-imposing some restrictions.
Last week, new data from China's National Bureau of Statistics showed property investment for the first five months of the year declined 4 per cent from a year earlier, increasing from the 2.7 per cent drop between January and April.
Home sales by volume fell 34.5 per cent on year in the first five months of 2022.
"There had been signs of life for domestic steel consumption after China's exit from lockdowns in early June, but the 'stop-start' disruptions caused by a relapse into scattered lockdowns [have] been an unwelcome blow to the country's well-intended economic recovery," Widnell said.