The health of China's steel sector is expected to improve in March, according to the latest Platts China Steel Sentiment Index (Platts CSSI), which showed a reading of 74.05 out of a possible 100, up 17.19 points from the February level of 56.86. The Platts CSSI reflects the responses of steel makers, traders and exporters at the end of each month to questions about new orders for the month ahead and the proprietary survey contains additional sentiment readings on demand, inventories and prices.

"The survey for March suggested that China's steel sector expects improved orders to allow it to lower inventories and boost prices," said Tomas Gutierrez, Platts managing editor for China metals. "Construction activity is poised to pick up in the usually warmer month of March and this could help bolster steel demand for some products."

Similar to a purchasing managers' index, a Platts China Steel Sentiment Index greater than 50 suggests the steel sector may be headed for improvement and a figure less than 50 indicates the sector may be headed for decline. The Platts China Steel Sentiment Index is a weighted total of survey respondent estimates of new orders.

In addition to the overall Index reflecting new orders expectations, the Platts China Steel Sentiment Index Survey also includes separate sentiment categories reflecting expectations of production, inventories, and prices of domestic steel and steel for and export.

While most components of the survey for March showed a score greater than 50, indicating expansion, traders' views of inventories slumped to 33.28 from the prior month's 88.14, suggesting that market inventories were overbuilt in the period around China's New Year holidays in February and will likely decline immediately ahead.

Some 70% of survey respondents active in steel long products, such as reinforcement bar and rod, anticipated declines in inventories for March. Traders of steel flat products, such as sheet and plate, held mixed views on the month-ahead outlook. Most expected no change in inventories and less than one third predicted an inventories drop.

"The traders of all steel products show a clear indication of reduced stocks levels," said Gutierrez. "While traders look for an improvement in steel demand in March, they believe tight credit conditions and an uncertain longer-term outlook are reasons to increase cash flow and minimize the risks of holding inventories."

Survey respondents also held mixed views on the outlook for steel prices. While expectations of seasonal warmer weather and renewed construction activity was seen as a likely booster to steel long product prices for March, survey respondents foresaw no significant deviation from recent price bands.

Mill inventories may increase slightly this month despite better end-user demand, as traders temper purchases to better control inventories, the survey showed.

Despite a rise in the inventories component, steel mill operators indicated production will remain steady. Supporting this indication is the return of seasonal demand from the construction sector and widespread market hopes that pollution-control initiatives could be eased.

The Platts CSSI Survey suggests a bearish outlook for export prices in March despite an anticipated increase in export orders for the month.

The average price (including 17% value-added tax) of China's domestic steel rebar in Beijing, a bellwether location of the nation's steel industry, was Yuan 3,228 per metric ton ($528/mt) in February, according to Platts' price assessments. This follows a January average of Yuan 3,206/mt.

The monthly Platts China Steel Sentiment Index is based on a survey of approximately 50 to 75 China-based market participants including traders, stockists and steel mill operators. The survey of month-ahead sentiment is conducted during the last full working week of each month, with the results published via press release and Platts' products and services around the 10th of the next month. Platts began tracking steel sector sentiment in China in May 2013. The Platts China Steel Sentiment Index survey plays no role in Platts' formal price assessment processes.