Huixian Xinwei Refractories Co. , https://www.xinweirefractory.com
The contradiction between oversupply in the steel market will exist for a long time.
In recent months, China has implemented numerous "stabilization-oriented" policies aimed at boosting economic growth. These efforts are anticipated to gradually improve the steel demand outlook in the near future. However, the steel industry continues to face significant challenges due to the persistent oversupply caused by excess domestic production capacity. Despite some recent price fluctuations, the overall market remains under pressure, with steel prices continuing to hover at relatively low levels. As of the end of October, the CSPI's 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. Nevertheless, compared to the same period last year, this figure still reflects a year-on-year decrease of 17.33 points, or 14.12%.
The national crude steel output for the first half of October reached approximately 1.99 million tons, showing a slight uptick of 67,000 tons compared to September. While production has shown signs of recovery, it has yet to reach its peak levels observed earlier in the year. Analysts suggest that during the traditional peak consumption season for steel, the industry’s growth rate has rebounded modestly. Additionally, the acceleration in steel exports and a notable decline in social inventories have helped alleviate some of the domestic supply-demand imbalances. Furthermore, enhanced market expectations, driven by increased government investment approvals, have contributed to a slight recovery in steel prices.
Despite these positive developments, the financial performance of major steel producers remains concerning. From January to September, the aggregate profit-and-loss figures for members of the Iron and Steel Association amounted to a net loss of 55.28 billion yuan, marking a year-on-year decline. In September alone, losses continued to widen. The ongoing pressure to reduce costs and boost efficiency remains a critical challenge for the sector. The China Steel Association emphasized that although the steel market has seen some recovery, the rapid expansion of production capacity poses risks. In September, the daily crude steel output reached 1.93 million tons, reflecting a 2% increase from August. Early October also saw elevated daily production levels. Nonetheless, it is unlikely that these increases will fundamentally resolve the underlying oversupply issue. Steel enterprises are encouraged to continue adhering to operational principles such as "no contracts, no production," ensuring sustainable practices.
Concurrently, the domestic steel price rebound has driven a sharp spike in spot prices for imported iron ore. Prices surged from $88 per ton at the beginning of September to $116 per ton currently, marking a 32% increase. Similarly, billet prices climbed from 3,010 yuan per ton to 3,300 yuan per ton, reflecting a nearly 10% rise—significantly outpacing the growth in steel prices. This surge in raw material costs has once again squeezed enterprise profitability, despite the slight price recovery. Moreover, the domestic iron ore market also exhibits an oversupply situation. By the end of October, the inventory of imported iron ore at ports dropped to 90.82 million tons, a reduction of 3.86 million tons from the previous month. However, this figure remains elevated, signaling persistent challenges.
From January to September, China’s pig iron production grew by 13.57 million tons year-on-year, representing a modest 2.7% increase. Meanwhile, the output of domestically mined iron ore increased by 75.18 million tons year-on-year, rising by 18.8%. This substantial increase in domestic iron ore production has comfortably met the demand for the corresponding rise in pig iron production. Additionally, China’s imports of iron ore remained robust, totaling over 42.91 million tons—an 8.4% increase year-on-year.
The China Iron Ore Price Index (CIOPI) stood at 390.74 points at the end of October, marking a 7.18% increase from the previous month. Concurrently, the CSPI’s China steel price index reached 105.39 points, reflecting a 2.94% monthly increase. However, the rise in steel prices was relatively weak compared to the dramatic 9.65% increase in the CIOPI’s imported iron ore CIF price, which now stands at $114.28 per ton. This disparity highlights the disproportionate impact of rising iron ore prices on steel producers’ cost structures. Given the rapid increase in iron ore prices in the short term, volatility is anticipated in the coming months.
Overall, while there are signs of improvement in the Chinese steel market, the sector must address fundamental issues related to oversupply and cost pressures. The short-term rebound in iron ore prices, coupled with persistent challenges in domestic production dynamics, underscores the complexity of restoring long-term stability and profitability to the industry.