Domestic Steel Market Shows Relaxed Supply-Demand Dynamics in January-February, Prices Remain Weak

In the first two months of the 2024, the domestic steel market witnessed a relatively relaxed supply-demand landscape, with prices showing a tendency towards weakness. According to reports, crude steel production totaled 167.96 million tons in January-February, marking a modest increase of 1.6% year-on-year. However, the combined output of the five major steel materials during the same period amounted to 67.34 million tons, reflecting a decrease of 4.8% compared to the previous year(2023).

The performance of the consumption end was lackluster in January-February, as the steel industry entered a lean season for downstream consumption. Apparent consumption of the five major steel materials witnessed a decline both sequentially and year-on-year, particularly in February. This decline was attributed to the combined effects of the Spring Festival and slower-than-expected demand recovery post-holiday. In total, the apparent consumption of the five major materials reached 57.6043 million tons in January-February, down by 4.7% year-on-year.

The influence of the Spring Festival was significant in February, with many construction projects halted and consumption experiencing a severe downturn. As a result, steel prices fluctuated weakly in January-February, with prices first rising and then declining in February. The composite steel price index for the two months stood at 112.71 and 112.16 respectively, with a slight sequential change of 0.3% and -0.5%, and a year-on-year change of -1.8% and -4%.

While the number of profitable steel enterprises decreased, losses narrowed for major steel varieties. The average monthly Platts iron ore price index for January and February showed a sequential decrease of -0.9% and -7.6%, with year-on-year changes of 9.5% and -0.7% respectively. Similar to iron ore, the prices of coking coal and coke also declined due to reduced demand and a looser supply-demand situation.

Investment advice suggests that with the steel industry entering a lean consumption season and facing the lingering effects of the Spring Festival, overall demand remains insufficient. However, industries such as automotive and home appliances continue to maintain high levels of prosperity. While production-side supply has tightened, blast furnace operating rates remain low. Looking ahead, downstream demand is expected to gradually recover as seasonal effects fade, although the intensity of recovery may be weaker than in previous years due to the drag from the real estate industry.

However, factors such as insufficient effective demand, weakening external demand, and a shift towards weaker cost support are expected to continue exerting downward pressure on steel prices. Some varieties may present structural opportunities, but the profitability of steel enterprises may vary depending on the main products of the enterprise.

Risk warnings include the possibility of slower-than-expected downstream demand recovery, macroeconomic stimuli for infrastructure falling short of expectations, slower-than-expected growth in manufacturing consumption, and significant reductions in steel mill supply. It's important to note that the mentioned listed companies aim to illustrate industry developments and do not constitute coverage recommendations.