U.S. steel prices continued their decline this month alongside other steel markets. Hot rolled coil, cold rolled coil, and hot dipped galvanized prices all dropped beneath their early March bottoms. HRC prices, in particular, continue to close in on the $1,000/st mark, while plate prices saw their second consecutive month-over-month decline.The Raw Steels Monthly Metals Index (MMI) fell by 6.91% from June to July with all components of the Index showing declines. 

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Global hot rolled coil prices declined to pre-war levels in early July as China’s lockdowns and the prospect of a global downturn weighed on prices. U.S. steel prices saw the most sizable bounce from Russia’s invasion of Ukraine after a 5-month downtrend inverted in early March.

From the early March bottom, prices increased nearly 44% until the descent resumed in late April. At the start of July, prices stood nearly level with the March low. However, the decidedly bearish trend continued, unbothered by that threshold. Indeed, hot rolled coil prices dropped 48% from their October all-time high at the end of the first week of July.

Prior to the invasion, European hot rolled coil prices remained within a larger uptrend. Meanwhile, U.S. hot rolled coil prices more than quadrupled from their 2020 low until their peak. However, European prices rose at a more moderate pace and skipped the trend reversal seen by their U.S. counterparts. The invasion, nonetheless, triggered a sharp 12% jump from March to April. Still, the effect of the conflict appeared short-lived, as prices began to slump during April. By June, the pre-war uptrend had reversed, erasing gains as prices prices fell to their lowest level since January.

Meanwhile, Chinese hot rolled coil prices peaked long before their Western counterparts. The uptrend, which began in April 2020, saw a sharp reversal by mid-May of 2021. This was after Beijing issued warnings on price speculation. Although the following year saw multi-month periods of consolidation and uptrending, gains were wiped out before prices could overtake previous highs by more substantial declines. Thus, prices remained within a macro downtrend.

Nonetheless, ahead of the invasion, Chinese hot rolled coil prices saw three months of steady increases. The invasion appeared to trigger a 7.4% jump over the course of a week in early March, but the spike soon corrected. And though prices rebounded, they failed to overtake that early March high before the impact of lockdowns began to take effect, and the downtrend resumed. Prices now sit almost 21% beneath their March peak at their lowest level since November of 2020.

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While global prices continue to trend downward, Chinese steel prices sit substantially lower than their Western counterparts. Even before the most recent lockdowns, China’s property sector, a leading consumer of steel, saw property sales, investment, and new construction drop for months. According to the National Bureau of Statistics of China, the first five months showed year-over-year contractions of  31.5%, 4% and 30.6%, respectively.

In fact, May marked the eleventh consecutive month of decline for house and apartment sales. These declines occurred in spite of China’s efforts to bolster the beleaguered sector during the same period. According to Chinese state-owned Sina Finance, China made almost 500 regulatory changes and stimulus measures related to the property sector during the first half of 2022.

While lockdowns and zero-COVID policies did not cause the property sector downturn, they certainly worsened it. For China’s steel sector, the impact of both has translated to a substantial supply glut. Currently, demand remains weak and prices continue to slide. According to a recent Bloomberg report, data from the China Iron & Steel Association showed that while inventories fell slightly from record-highs reached in June, they remain 23% above the previous year. Plummeting demand amid strong output caused numerous steelmakers to become unprofitable and forced numerous mills to curb output.

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Theoretically, China’s “all-out” infrastructure push should benefit the steel sector. However, the recent detection of the highly-transmissible Ba.5 in Shanghai, alongside rising case counts, could put those projects at risk.

During the first five months of the year, outbreaks caused numerous disruptions to construction projects. And while the National Bureau of Statistics reports that China’s infrastructure budget rose by 6.7% during that time, its construction sector remained crippled by lockdowns and restrictions.

Meanwhile, excavator production and sales, which are leading indicators for Chinese construction activity, showed continued declines throughout the previous year. In fact, the China Construction Machinery Association (CCMA) showed a 30.5% year-over-year drop in excavator production during the first five months of 2022. In April alone, domestic excavator sales dropped 61% from 2021.

Hitachi Construction Machinery likewise showed consistent monthly year-over-year drops in Chinese demand for hydraulic excavators. On top of that, the company’s average operating rates fell over 7% year over year during the first five months.

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