According to Chengjiu Research, since May this year, the national transaction volume of welded pipes has seen a significant decline alongside falling prices. Data from the research shows that in July, the transaction volume of welded pipes for sample enterprises decreased by 35% year-on-year. Although there is a traditional seasonal rebound in steel demand in mid-to-late August, Chengjiu data indicates that the improvement in infrastructure fundamentals is less than satisfactory. The “data improvement” in the capital aspect has not translated into a substantial improvement in physical workload. It is estimated that infrastructure activity in August will only show limited improvement on a month-on-month basis. Welded pipe demand is expected to remain stable, but there is little room for upward expansion.
Supply and Demand Decline, Inventory Pressure Remains High
Chengjiu Research indicates that since June, welded pipe production has significantly decreased, with factory inventories continuing to rise. Currently, the total inventory of welded pipes at sample enterprises hovers around 830,000 tons, an increase of 0.4% year-on-year, while demand has decreased by 35% year-on-year, significantly increasing the pressure to reduce inventory. Additionally, due to the rapidly expanding production losses, incomplete statistics from Chengjiu show that as of July 26, more than ten steel mills had announced production reduction measures, mainly focusing on rebar production lines. However, Chengjiu data shows that the average daily hot metal production of 247 steel mills in August may drop from the year-high of 2.4 million tons in the previous month to 2.35 million tons, still a slow reduction. Although subsequent research may show further declines in hot metal production, so far, the extent and determination of production cuts by steel mills have been insufficient to improve weak market expectations, and confidence in rising steel prices during the peak season is severely lacking. It is believed that the current high inventory and low market consumption are the direct reasons for the significant market pressure and the fundamental reasons for the current market adjustment.
New Rebar National Standard Release to Implementation Timeframe May Be a Recent Cause for Decline
The new rebar standards GB1499.1-2024 “Steel for Reinforced Concrete Part 1: Hot-rolled Plain Bars” and GB1499.2-2024 “Steel for Reinforced Concrete Part 2: Hot-rolled Ribbed Bars” were released on June 25, 2024, and will be implemented on September 25, 2024, with a three-month transition period. Chengjiu research data indicates that the current total inventory of construction steel in the market is still more than 9 million tons, mainly old national standards. After the release of the new standard, which will be converted from a national recommended standard to a mandatory national standard, there is widespread concern in the domestic steel trade sector about the significant pressure to reduce inventory in a short time, leading to the current “panic” price reduction and shipment situation. The decline in rebar prices has driven the overall steel market trend, affecting the welded pipe sector.
Summary
Recent welded pipe prices have significantly overshot to the downside. With current inventory conflicts not prominent, raw material prices are expected to marginally recover. However, it must be noted that the recovery rebound after the welded pipe prices have overshot does not equal a structural bottom and rebound in steel prices. Unless steel mills significantly increase production cuts, it is difficult to be optimistic about the future improvement of steel fundamentals. Even if steel prices recover marginally in August, the monthly average price is still expected to continue to decline year-on-year.
In the short term, the scale of local debt issuance is below expectations, and it is difficult for special bond funds to be implemented. Although August will soon see the seasonal rebound, the rate of decline in steel production is slow, and the overall supply and demand pressure remains high. However, for welded pipes, pipe mills have already started to voluntarily reduce production in the second quarter, leading to relatively smaller supply pressure. Recent welded pipe prices have significantly overshot to the downside. With current inventory conflicts not prominent, welded pipe prices are expected to marginally recover. However, it must be noted that the recovery rebound after the welded pipe prices have overshot does not equal a structural bottom and rebound in steel prices. Even if welded pipe prices recover marginally in August, the monthly average price is still expected to continue to decline year-on-year.