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The contradiction between oversupply in the steel market will exist for a long time.
In recent months, China has implemented numerous "stabilization and growth" policies aimed at bolstering its economy, which has sparked some optimism regarding future steel demand. Despite these efforts, the domestic steel industry continues to grapple with overcapacity, resulting in persistent oversupply issues that keep prices at low levels. By the end of October, the CSPI domestic steel composite price index stood at 105.39, marking a 2.94-point increase from the previous month, representing a 2.94% rise year-to-date. However, compared to the same period last year, it remains 17.33 points lower, reflecting a 14.12% year-on-year drop.
During the first half of October, national crude steel production averaged 1.99 million tons per day, showing a slight uptick of 67,000 tons compared to September. While production has seen a recovery, it has yet to reach its peak levels from earlier in the year. Analysts note that despite the traditional peak season for steel consumption driving a rebound in industry growth and accelerating export growth, the domestic market’s supply-demand imbalance has somewhat improved. Additionally, enhanced government investment approvals and positive market expectations have contributed to a modest recovery in steel prices. Nevertheless, the profitability of steel companies remains challenging. From January to September, the Iron and Steel Association reported a cumulative loss of 55.28 billion yuan among its member firms, a significant year-on-year decline. Losses continued into September, further exacerbating the financial strain on enterprises.
The China Steel Association emphasizes that as the steel market rebounds, so does the rapid release of production capacity. In September, daily crude steel output reached 1,931,600 tons, a 2% increase from August. Early October also saw high daily production levels, yet these increases do not address the fundamental issue of excess demand. Steel companies must continue adhering to their operating principles of no contracts, no production, no money, no delivery, and no sales. Moreover, the recent upturn in domestic steel prices has driven a sharp spike in imported iron ore spot prices, rising from $88/ton in early September to $116/ton currently, an increase of 32%. Similarly, billet prices surged from 3010 yuan/ton to 3300 yuan/ton, an almost 10% jump—far outpacing the rise in steel prices, thereby escalating production costs and further pressuring enterprise profitability.
At the same time, China's domestic iron ore oversupply situation remains stark. As of the end of October, port inventories of imported iron ore dropped to 90.82 million tons, a decrease of 3.86 million tons from the previous month but still at elevated levels. Between January and September, China's pig iron production increased by 13.57 million tons year-on-year, representing only a 2.7% growth. Meanwhile, domestically mined iron ore (raw ore) increased by 75.18 million tons year-on-year, growing by 18.8%, easily meeting the domestic demand for pig iron production. Furthermore, China’s imports of iron ore continued to rise, reaching over 42.91 million tons, an 8.4% increase year-on-year.
Looking at iron ore pricing, the China Iron Ore Price Index (CIOPI) ended October at 390.74 points, a 26.18-point, or 7.18%, increase from the prior month. By the end of October, the CSPI China steel price index stood at 105.39 points, up 2.94% from the previous month, though the rebound remained weak. In contrast, the CIOPI imported iron ore CIF price climbed to $114.28/ton, a 9.65% increase from the previous month, surpassing the steel price index increase by 3.28 times. Given the rapid rise in iron ore prices in the short term, fluctuations are anticipated in the coming period.