(Yicai Global) April 23 -- The price of Chinese steel should rebound in the second quarter after falling due to the Covid-19 pandemic in the first, but the ongoing outbreak overseas may result in waning demand for exports, according to the China Iron and Steel Association.

Falling demand and prices in the first quarter hampered profitability at Chinese steel companies, with key member company profits halving annually to CNY18.3 billion (USD2.6 billion), CISA said at a press briefing yesterday. Revenue at the firms slipped 5.6 percent to CNY981.6 billion (USD126 billion).

Rising mineral costs are also making it challenging to reduce costs and make steel production more efficient, it added, saying the average price of imported iron ore in China in the first quarter was up 11.7 percent at USD90.59 a ton. Steel prices, however, fell 5.7 percent, data from the General Administration of Customs shows.

Steel inventory in China has been declining since mid-March, though at the end of last month stocks at mills and those stored socially were at nearly 18.1 million tons and 19.1 million tons, both higher than at the same time in previous years.

The high levels of inventory affect the market’s stability outlook, said CISA’s Executive Chairman He Wenbo. If supply exceeds demand then it will be difficult to destock, and excess inventory may become the norm for the rest of the year -- but steel is expensive to story and this will affect capital turnover, he added.

Large-scale infrastructure investment in China should provide strong support for domestic demand, He continued, saying companies will spend more money on construction in the second quarter and second half of this year than last.

Exports may not fare so well. Outbound sales volume already fell by 16 percent in the first quarter following a 7.3 percent drop throughout 2019, and the ongoing spread of Covid-19 overseas will continue to hamper demand from outside China. Exports of machinery, cars and appliances have also suffered, indirectly influencing steel exports.

Many overseas buyers have also been pushing back deliveries since the end of March, with several reducing quantities or even cancelling their orders, according to the association, which predicts exports will continue to decline annually in the second quarter.

Demand could slide yet further if the pandemic continues to spread, though domestic purchasing could offset some of this, He said.

Editor: James Boynton