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Development and Reform Commission: The steel market in the second quarter is not optimistic
The National Development and Reform Commission (NDRC) recently released a statement highlighting the current challenges facing China's steel industry. According to the notice, the rapid growth in steel production during the first quarter, combined with a sharp rise in inventory levels, has created an uncertain outlook for the second quarter. The situation is further complicated by the slow global economic recovery, which has led to increased trade tensions and protectionist measures.
As a result, the export of Chinese steel products is becoming more difficult. Several countries, including the United States, Australia, Canada, Malaysia, Thailand, and India, have launched anti-dumping and countervailing investigations, as well as trade security measures against Chinese steel. These actions involve over 10 cases this year alone, signaling a growing challenge for exporters.
Despite these difficulties, the NDRC also pointed out some positive factors. The ongoing push for new urbanization is expected to boost market confidence, while industries such as automobiles and home appliances are projected to see modest growth this year. This supports the underlying demand for steel. However, rising costs—due to tighter capital availability, energy conservation efforts, and environmental regulations—are likely to limit production growth in the first half of the year.
In addition, the reform of resource prices, energy costs, and tax policies has led to higher operational expenses for companies. For instance, the railway freight rate per ton was raised by 1.5 points on February 20, costing the steel industry over 20 billion yuan. Meanwhile, corporate financing costs have also risen, with large and medium-sized steel companies reporting a 14.35% increase in financial expenses between January and February.
Another key issue is the mismatch between raw material prices and steel prices. At the end of March, the CIF price of imported iron ore reached $140.35 per ton, up 61.9% from its lowest point in late September last year. Prices for metallurgical coke and scrap are also on the rise. Given the lag in cost transmission, the high input costs from the first quarter will continue to pressure profit margins in the coming months, leading to continued low profitability in the second quarter.
Overall, while the steel market environment this year is expected to be better than last year, the sector still faces significant headwinds. The traditional peak season in the second quarter may lead to increased demand, but with excess production capacity and high operating costs, it remains challenging for steel companies to improve their performance.