Chinese steel producers reckon things are great

Photo credit should read AFP/AFP/Getty Images

Sentiment levels across China’s steel industry remain as strong as the product itself.

That is no better demonstrated than in the chart below, supplied by Macquarie Research. It shows sentiment levels among Chinese steel mills, steel traders and iron ore traders, looking three months ahead.

Although not as high as levels seen earlier this year, all groups remain positive towards the near-term outlook.

“Sentiment has picked up again in the Chinese steel market according to our latest proprietary survey, helped by higher steel prices since late June,” says Macquarie.

“Steel mills reported better orders from both domestic and export markets over the past month, though their capacity utilisation rate was slightly lower.

“Although July is usually a slow season for steel demand and production, given improved profitability and declining plant inventory, mill interest in raw materials restocking has modestly improved,” they add.

As Macquarie alludes to, profitability at many steel mills has improved dramatically in recent months. Low inventory levels, accompanied by a sharp acceleration in state-backed infrastructure investment, saw steel prices surge by more than 50% from levels seen in late 2015, leaving many firms that were once unprofitable return to the black.

The improvement in profitability can be seen in the chart below, again supplied by Macquarie.

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