Shanghai: Steel Rebar prices in the Chinese metal market are down 6.5% due to weak demand, forcing supply-side reductions. As per market players, the rise in COVID-19 cases exerts further downward pressure on the metal market.

According to manufacturers, Chinese steelmakers were forced to increase production curtailments due to weak construction steel demand, which pushed their profit margins into the negative domain. Further, rising steel scrap prices and a supply crunch negatively affect metal prices. Extreme heat waves in several provinces across China weighed on steel production efficiency, forcing authorities to ration electricity and prioritizing residential use over industrial consumption. Steel inventories in the domestic market fell quickly in July as output cuts increased, resulting in an upward correction in steel prices and margins in late July.

In August, the central government tightened financing for indebted developers, which was the primary reason for poor construction activity, causing a sharp slowdown in the demand outlook. Some market players cite the quick decline in the steel market inventories because traders were destocking, given the bleak outlook for steel demand for the rest of 2022. Also, COVID conditions recently worsened in China, renewing fears of another round of stringent lockdowns, which weigh on Steel Rebar prices. Suppliers cite that COVID cases in China have reached a three-month high, owing to a worsening outbreak in the tropical Hainan province, which has become the country's most serious since Shanghai was closed down in the spring.

Along with domestic traders, major steel mills are skeptical that poor construction will continue undermining China's Steel Rebar demand. Hence, mills, in general, are still cautious about ramping up Rebar output or commissioning new iron or steelmaking capacity. Thus, ChemAnalyst anticipates that China's Steel Rebar output may rebound in August in line with improved profit margins. However, production activity would remain relatively low for the remainder of 2022 because of poor demand.