Nationwide steel prices had climbed slightly during February on improved market sentiment, with the composite steel price under Mysteel's assessment over February 1-27 averaging Yuan 4,407.1/tonne ($635.2/t), up by Yuan 50.5/t from that over January 3-31.
However, there is "very limited" scope for the price to rise further this month, Wang predicted, as the recovery in domestic steel demand remains slow.
During February 17-23, the fourth week after Chinese New Year holiday ended on January 27, domestic consumption of the five major carbon steel products comprising rebar, wire rods, hot-rolled coils, cold-rolled coils, and plates totalled 9.6 million tonnes, being only 299,900 tonnes or 3.2% higher compared with the same period last year, according to Mysteel's survey.
"The performance (of consumption) has fallen short of market expectations, making steelmakers and traders less confident about firming their offering prices," Wang noted.
The low volume of construction steel transactions also reflected the slow recovery of steel demand. Mysteel's survey showed that over February 6-27, the daily average trading volume of construction steel including rebar, wire-rod, and bar-in-coil among the 237 Chinese trading houses under Mysteel's tracking stood at around 133,720 tonnes/day.
"The trading volume cannot provide any support for steel prices until it averages 160,000-180,000 t/d or above," he added.
Another factor weighing on steel prices is the high level of steel product inventories, Wang pointed out. For example, as of February 20, total finished steel stocks among member mills of China Iron and Steel Association had mounted to 19.53 million tonnes, being 2.6 million tonnes or 15.54% higher compared with the same period last year.
Meanwhile, billet inventories among four commercial warehouses and two ports in North China's Tangshan kept rising during the past two months to reach a near 10-year high of 1.5 million tonnes as of February 23, according to Mysteel's survey, though the accumulation of billet stocks has slowed of late and may start to drop in March.
"(But) it is very unlikely that billet stocks in Tangshan will retreat to normal levels this month, and this will definitely place considerable pressure on the prices of this product," Wang said.
"Moreover, billet trading is always active, which means the slide in billet prices may drag on prices of other products throughout the whole industry chain," he warned.
Nevertheless, Chinese steel prices still have a chance of rebounding in March, Wang predicted. "If there are strong economic stimulus policies introduced during the Two Sessions meetings this week, this could give a lift to market confidence, causing steel prices to strengthen," he noted.
The week-long Two Sessions meetings – namely the Chinese People's Political Consultative Conference and the National People's Congress – will begin in Beijing from March 4 and 5, during which the members will propose and discuss policies to expand domestic demand and boost the economy, Mysteel Global learned.
Regarding steel-sector fundamentals, Wang noted that steelmakers are still incurring high production costs due to the increase in the iron ore and coke prices. A recent Mysteel survey found that less than 40% of the 247 steel mills under Mysteel's tracking had managed to make some profits during the week of February 17-23.
As such, steelmakers would be reluctant to cut their steel prices, Wang believed. "Large-sized steel mills may not change their offering prices for the steel products scheduled for delivery in April, and some may even lift their quotations, hoping to cut their losses," he said.