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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 concerns about the steel market outlook for the second quarter. The report pointed out that the rapid increase in steel production during the first quarter, combined with a sharp rise in inventory levels, has created an uncertain environment for the industry. This situation is expected to persist into the second quarter, with supply exceeding demand and putting downward pressure on prices.
In addition to domestic challenges, the global economic recovery remains sluggish, leading to heightened international trade tensions and a surge in protectionist measures. Several countries, including the United States, Australia, Canada, Malaysia, Thailand, and India, have launched anti-dumping and countervailing investigations against Chinese steel products this year. These actions have already affected over 10 cases, making it increasingly difficult for Chinese steel companies to export their goods profitably.
Despite these challenges, the NDRC also noted positive developments. China's ongoing urbanization initiatives are expected to boost market confidence and support long-term demand. Additionally, industries such as automotive and home appliances are anticipated to see modest growth this year, which could help sustain steel demand. However, factors like tight capital availability, energy conservation efforts, and environmental regulations may limit production growth in the first half of the year.
On the cost side, rising resource and energy prices, along with increased investment in environmental compliance, are pushing up operational expenses for steel companies. For example, a 1.5-point increase in railway freight rates in February is estimated to impact more than 20 billion yuan in the steel sector. 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, marking a 61.9% increase from its lowest point in late September last year. Prices for metallurgical coke and scrap have also been climbing. Due to the lag in cost pass-through, the high input costs from the first quarter are expected to continue pressuring margins in the coming months, leading to continued low profitability in the second quarter.
While the overall market environment for the steel industry is expected to improve compared to last year, the combination of excess capacity, high production costs, and weak demand conditions means that companies will still face significant operational challenges. As the traditional peak season approaches in the second quarter, demand is likely to rise, but the industry’s ability to turn this into improved performance remains uncertain.