China's steel market will stay weak in May, traditionally a time of peak consumption, with downstream demand still uncertain and low prices expected to persist, the country's steel industry body warned on Thursday.
Demand for steel in China, the world's largest consumer and producer of the metal, usually peaks during the second quarter along with construction activity.
But first-quarter annual economic growth of 7.7 percent was less than forecast, and manufacturing sector growth slowed in April, tarnishing hopes for the world's second biggest economy to help kick off a global rebound this year.
"Although China has already entered the peak season for steel-consuming industries, demand remains lukewarm, new building in the construction sector has fallen and the manufacturing sector remains weak," the China Iron and Steel Association said in a regular market report for April.
Despite uncertain demand, China's steel mills have produced 191.75 million tonnes of crude steel in the first three months of 2013, up 10.1 percent from last year.
In the first quarter, new real estate construction, a major driver of steel demand in China, fell 2.7 percent on the year, and while investment in railway construction soared 28 percent in the first three months, policy uncertainties lie ahead following the restructuring of China's transport ministry in March, CISA said.
Delays in the release of China's detailed new urbanisation plans were also fuelling uncertainty, it added.
While market pressures are expected to lead to a decline in output in May, the association said, absolute output levels remained too high and product stockpiles -- which reached a record in March -- were not falling fast enough.
CISA says non-steel mill product stockpiles in major cities stood at 20.84 million tonnes by April 19, down 470,000 tonnes on the week. They have fallen for five consecutive weeks since hitting more than 22 million tonnes in March.
China's biggest listed steel mill, Baoshan Iron and Steel , said this month it would keep unchanged major product prices for May, but other big mills, such as Wuhan Iron and Steel and Anshan Iron and Steel, have cut some prices for May delivery, CISA said.
Benchmark iron ore prices .IO62-CNI=SI fell on Wednesday to their lowest point in a month as a result of weak demand in China, the world's biggest buyer of the raw material.
CISA said a big decline in prices was unlikely over the next few weeks, with port iron ore stocks low.
Source: Reuters
