Steel Prices Have Not Followed Patterns in the Covid-19 Era

Compared to the recent rise in steel prices in China, the rise in domestic steel prices looks weak. While steel prices in China have risen, the link between steel prices in China and steel stock prices has weakened. In addition, product price increases in the main downstream industries are proving difficult, and the influx of inexpensive Japanese steel into the Korean market is putting pressure on domestic steel prices.

Link between Chinese and Korean steel prices weakened

In the Chinese steel market, the sales price of HR (national average) rose 19.6% from a low of 3427 yuan /ton on April 8 to 4 098 yuan /ton on September 2. The export price of HR in China has risen from a low of $ 400. per ton on May 6 to $ 502 per ton on August 26, an increase of 25.5%. Driven by growing demand for real estate and infrastructure development, as well as rising iron ore prices, steel prices in China continue to skyrocket.

In contrast, in Korea, the selling price of HR rose only 6.3% from a low of 630,000 won /ton on June 8 to 670,000 won /ton on August 31. Even taking into account the typical time lag between the movement of steel prices in China and in the domestic market, the rise in steel prices in the domestic market looks relatively weak. Demand is expected to rebound as production resumes following the start of Covid-19. However, improvements in ASP performance for steel companies are likely to be limited as: 1) there is significant resistance to price increases in key downstream industries (eg, automotive and shipbuilding); and 2) Japanese steel products arrive in Korea at low prices.

In the era of Covid-19, it is worth paying attention to the import price of Japanese steel products.

In the past, the domestic steel stock price cycle has followed the path of “rising steel prices in China → rising steel prices on the domestic market → rising steel stock prices driven by improved profitability”. However, while steel prices in China have risen steadily since the April bottom since the Covid-19 outbreak, the rise in stock prices for domestic steel companies has been limited. In China, shares of the largest steelmakers are also showing sluggish performance compared to rising steel prices. Against this backdrop, it seems that the correlation between steel prices and steel stock prices has weakened in the Covid-19 era. It should be noted that while confidence in the global economic recovery is still fragile, the upward trend in steel prices in China is largely attributable to government incentives and rising commodity prices.

In the domestic steel market, one should pay attention to the price dynamics of steel imports from Japan. In January-July, Japan's share in imports of steel products