February 07, 2024 (MLN): China’s steel and cement production are likely to remain low in 1Q2024 due to a slowdown in construction activity in the winter, the Chinese New Year holidays in February and the government’s two-session meetings in early March, Fitch Ratings says.
Steelmaking raw-material prices are likely to start declining as suspended capacity restarts and stocking up for winter ends.
This may provide room for an improvement in steel product margins. We also expect cement profit margins to stabilize in 2024 as margins are already low and the average selling price (ASP) is likely to track raw-material price movements.
China’s 4Q2023 crude steel production dropped more than 10% QoQ, in line with our expectations, and cumulative production was flat YoY at 1.02 billion tons in 2023, meeting the government’s annual production guideline.
The production drop in 4Q23 was due to weak seasonal demand, which provided some support for the ASP.
However, steel products’ margins were under pressure as coking coal prices spiked following a series of mine site accidents and iron ore prices stayed elevated, supported by producers stocking up for the winter.
As a result, the iron ore ASP increased by 9% QoQ and 30% YoY in 4Q23 and the coking coal ASP rose by 22% QoQ and 5% YoY.
Cement output for 2023 declined by 4.5% to the lowest since 2010, while the ASP fell by around 20% amid a continued decline in property investment, which more than offset the growth in infrastructure investment.
As a result, the industry-wide margin for 2023 is likely to have fallen from 7.2% in 2022 to around 3%-4%, comparable to the last industry trough of 3.7% in 2015.
