The latest data released by the Steel Logistics Professional Committee of the China Federation of Logistics and Purchasing recently showed that the PMI of the steel industry in April was 45.4, a decrease of 2.5 percentage points from the previous month. The sub-index shows that the growth rate of steel mills' orders has slowed down, steel production has fallen, overall inventories continue to decline, and raw material prices have rebounded rapidly in the short term. It is expected that in May, market demand will continue to slow down, production will tend to decline, the import and export pattern will change, and iron ore prices may fall from high levels.
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On the demand side, in April, due to higher steel prices during the month, the downstream industry's fear of heights increased, which had a certain impact on the demand of steel traders. The growth rate of steel orders slowed down, and the new order index was 44.4, a decrease of 2.7 percentage points from the previous month. On the foreign demand side, despite the renewed outbreak of foreign epidemics, the economic recovery continues and steel demand is rising, with the index of new export orders at 51.7 per cent, up 8 percentage points from the previous month.
On the production side, steel production fell in April. On the one hand, market demand has slowed down, on the other hand, it is affected by the production restriction policy. The production index was 47%, down 4.3 percentage points from the previous month, and fell into the contraction range after running above 50% for two consecutive months. According to estimates from the China Iron and Steel Association, the country's cumulative average daily crude steel production fell 0.31 percent month-on-month this month, while daily steel production fell 1.45 percent month-on-month. Due to the decline in steel production and the rise in raw material prices, steel mills' raw material procurement activities have contracted. The procurement volume index in April was 46.1, a decrease of 5 percentage points from the previous month.
In terms of prices, raw materials as a whole strengthened again, and the prices of various raw materials rose to varying degrees. In April, the purchase price index was 69.4, up 13.1 percentage points from the previous month. The price of iron ore rose sharply. The 62% index of iron ore rose from 167 yuan/ton at the beginning of the month to 193.85 yuan/ton, an increase of 26.86 yuan/ton within the month, a record high. Due to the rising cost of raw materials, the production restriction policy has an impact on production expectations, which has a strong boost to steel prices, and steel prices continue to rise during the month.
According to the analysis, after entering May, the steel market demand is expected to continue to slow down, and the industry may enter the seasonal sales off-season. In the short term, the downstream demand of the steel industry may gradually weaken, and the rise in raw material prices will increase the production cost, which will inhibit the production of steel mills. In the long run, the implementation of the latest tariff policy on steel products will help reduce the cost of steel imports, expand the import of steel resources, and help support the reduction of domestic crude steel production. At the same time, the market demand for iron ore will also be reduced, and the willingness of steel mills to import may further decline. Iron ore prices may fall from high levels.
Website Editor: Gong Li
