The steel industry's production index edged up slightly but remained in contraction territory for a third consecutive month; the new orders index returned to expansion territory; the finished goods inventory index and purchase price index dipped slightly; the business activity expectations index rose to a near five-month high. All these data show that the supply-demand situation in China's steel industry continues to improve, steel enterprises are securing orders well, steel mill inventories have declined, and expectations for the market outlook are generally optimistic.
At present, steel mills' production enthusiasm has heated up somewhat. Procurement activities related to production show a clear expansion trend. In January, the purchase volume index rose 2.6 percentage points to 52.9%; the imported raw materials index rose 5.8 percentage points to 56.9%, the highest since May 2016 and in expansion territory for four consecutive months; the raw material inventory index rose for a third straight month to a near nine-month high, up 0.8 percentage points from the previous month to 53.1%. Judging from these index changes, as steel prices continue to rise, steel mill profits continue to improve, production enthusiasm has heated up somewhat, and with optimistic expectations for the market outlook, steel mills' enthusiasm for raw material procurement has increased markedly.
Steel mill costs have changed little. In January, the steel industry purchase price index extended the previous month's decline, but the drop was limited, falling 2.0 percentage points to 58.9%. This index has been above the 50% expansion threshold for 11 consecutive months, indicating that steel mill costs remain high. Raw material price trends diverged: billet and iron ore prices fluctuated upward, while coking coal and coke prices continued to fall. The Platts iron ore index for 62% grade is currently $83.25 per ton, up $3.6 month on month. The latest average available ore days at domestic steel mills is as high as 35 days, the highest ore inventory level since the Spring Festival in 2014, whereas in 2015 and 2016 steel mills lacked the incentive to restock ore before the holiday for two consecutive years. Meanwhile, pressure from iron ore arrivals has not eased; iron ore inventories at major domestic ports have approached 120 million tons, a record high.
The relevant index report analysis believes that steel mill profits have improved markedly and production enthusiasm has heated up. Although steel mills' finished goods inventories have declined somewhat, social inventories continue to climb, increasing supply pressure later on. However, favorable news has recently come continuously from the macroeconomic and industry policy levels, the domestic economy is stabilizing and recovering, the steel "capacity reduction" policy continues to gain traction, and market expectations for the outlook are generally positive, which is expected to support steel prices in continuing their volatile upward trend.