Chinese steel prices are expected to continue strengthening in May, supported by the likely improvement in both market fundamentals and macroeconomic conditions, Mysteel's chief analyst Wang Jianhua predicts in his latest monthly outlook.

Last month, China's steel prices were buoyed by rising energy prices worldwide as well as the recovery in domestic steel demand as the country's steel market entered the traditional peak consumption season of spring, Mysteel Global noted.

During April 1-30, the national composite steel price averaged Yuan 3,471/tonne ($509.6/t) including the 13% VAT, higher by 1% from the average price in March, according to Mysteel's assessment.

Entering this month, demand for construction steel is expected to expand further, with building contractors continuing to maintain active operations ahead of the rainy season that typically coincides with summer, according to Wang.

Meanwhile, the marginal recovery in the real estate market in April, together with increased national investment in infrastructure, will also support domestic steel demand, Wang maintained.

On the other hand, steelmakers are unlikely to raise their production further in May as their profitability has not improved to any great extent, despite the strengthening of steel prices in the past few weeks, Wang noted.

During April, the volume of hot metal produced by the 247 blast furnace (BF) steelmakers under Mysteel's tracking averaged some 2.39 million tonnes/day, higher by 5.2% from their daily average output in March.

By the end of last month, around 51% of these sampled 247 mills – 126 makers – said they could make some profits when selling their steel products, up by just 3 percentage points from end-March, Mysteel's survey showed.

Moreover, Chinese steel mills are expected to face tougher restrictions on production in May, according to Wang.

On April 24, China's central government issued the Comprehensive Evaluation and Assessment Method for Carbon Peaking and Carbon Neutrality, setting a range of assessment criteria to curb surplus industrial capacity, Mysteel Global learned.

"The government's efforts to control steel production may translate into concrete measures," Wang said.

With production limited and demand expanding, supply pressure on China's steel market will likely ease further this month, he believed.

By the end of April, the total inventories of the five major carbon steel products held by steelmakers and trading houses across the 35 Chinese cities under Mysteel's monitoring had fallen for seven straight weeks to reach 16.5 million tonnes, lower by 11% from the end of March. The volume is expected to drop by another 2 million tonnes by the end of this month, Wang projects.

On the macro front, China is expected to continue its moderately accommodative monetary policy to ensure ample liquidity, which should provide ongoing support for operations in steel consuming industries, Wang remarked.

The accelerated disbursement of central budget funds, ultra-long special treasury bonds, and other financial instruments will directly fund infrastructure projects, ensuring that steel demand from public works remains stable, according to Wang.