Why China’s Steel Prices Could Come under Pressure in H2 2018



China’s steel prices and economic jitters

While strong margins have been prompting Chinese steel mills to continue increasing output for the last several months, economic jitters have started to weigh on margins. The steel prices in China remained more or less range bound in June despite lower inventories. The ongoing tit-for-tat trade tariffs and the impact of China’s new monetary measures could have a far-reaching impact on the activity in a number of sectors in the country, impacting steel demand. Thus, market participants are currently on the sidelines waiting for more clarity.

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Seasonally weaker period

Moreover, as we’ve discussed in one of the previous parts of this series, Chinese construction is entering the seasonally weaker period. Weaker demand along with tighter credit conditions and slower infrastructure growth could mean further pressure on domestic steel prices.

Impact on mining companies

While steel mills’ overall profitability has remained healthy and steel inventories have stayed low (meaning firm iron ore demand), higher iron ore inventories could still pressure iron ore prices. The trend could be negative for seaborne suppliers (PICK) like Rio Tinto (RIO), BHP (BHP) (BBL), Vale (VALE), and Cleveland-Cliffs (CLF).


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