The situation in the Chinese steel market may lead to an increase in world steel prices

Chinese steel mills enjoy strong margins as they continue to benefit from the government's displacement of induction furnaces. The country's demand for steel products is also boosted by a robust housing market. But how long will these market conditions last?

The main factor this year has been the shutdown of 100 million tonnes or so of induction furnace capacity in China. The elimination freed up market share for valves and allowed more efficient manufacturers to increase capacity utilization. As a result, valve manufacturers are enjoying the best profits in nearly a decade and it is no surprise that they are producing as much steel as possible. This contributed to an increase in steel production by 4.4% in January-May.

The rental market is also secured by a robust housing market - despite many tightening policies to tackle low-quality steel.

These positive conditions and the impact of the closure of the induction furnace are expected to continue in the third quarter. This would mean that Chinese steelmakers are mainly focused on domestic rather than export customers, which should help maintain global steel prices.