Chinese first-quarter steel demand surges over 50%

Chinese official economic data for the first quarter shows crude steel output has remained very strong despite attempts to curb production levels in Tangshan. This has been driven by the strong recovery in end user demand, which gained over 50% year-on-year in Q1, Kallanish calculates.

Chinese crude steel output in March was up 19.1% y-o-y to 94.02 million tonnes, according to the National Bureau of Statistics (NBS). This brought output over the quarter to 271.04mt, up 15.6% y-o-y.

Q1 2020 saw output constrained by the Covid-19 lockdown, but March data was also the second highest on record after August 2020. Mills were producing crude steel at an annualised rate of 1.107 billion tonnes/year. This shows steelmakers operating as close to capacity as they can, while margins have been strong.

As noted in last month’s Kallanish China Steel Intelligence, China does not yet have the policies in place to engineer a y-o-y decline in steel output.

China’s trade balance meanwhile moved in the direction of exports in March despite higher steel imports. This was in part because exporters were rushing through cargoes ahead of an anticipated change in export tax rebates. Accounting for this, China’s apparent finished steel demand was up 19.81% in March at 84.1mt, and up 15.36% over the quarter at 246.14mt.

The biggest difference between Q1 2020 and 2021 however has been in end user demand. Accounting for inventory change, implied end user demand in March was up 30.01% to 89.79mt, but over the first quarter demand was up 51.61% at 196.28mt. The increase over the quarter equates to roughly the one month of demand lost due to the lockdown in 2020.

On a daily basis, demand in March recovered both on-year and from the winter, but is in fact still slightly below the average for the second half of 2020. As the weak basis for comparison fades after Q1, China’s output and demand growth rates will also slow sharply, and could turn negative by the end of the year.

Tomas Gutierrez UK