China has always been the progenitor of trends in the global steel market. The vacillating sentiments in domestic market in China have a ripple effect not only on the global steel prices but it bears a direct correlation with the swinging fortunes in raw material market as well.
2011 has been a trend breaker in many ways in China. Post Lunar Holidays a period of heightened expectancy paled off in no time. As the market slipped into viscous mirage awaiting the revival spark steel prices plummeted bearing a backlash on the iron ore prices. Even though there was time lag of nearly 3 weeks before the first fissures appeared in iron ore prices it was palatable since dynamics are different.
Whereas the ore market was riding crest at this point propped on scuttled supply from India and fervent buying by Chinese mills to cope with the production rage. The steel market hitherto struggling to revive groaning under monumental stocks was torpedoed by the hike in lending rate by PBOC.
It is remarkable that against all odds the steel production and iron ore imports flourished in February and March
Towards March and much of April the correlation become more precise and pronounced as the gloom overstretched. The turnaround after the Ching Ming festival in domestic levels kindled hopes of revival which seemed to be sustainable as it did not have an a speculative tenor. It was all the more encouraging in the backdrop of yet another tempo puncturing hike interest by 25 basis points on 5th April.
Repetitive whip lashing by hike in interest rate finally took toll on the purchasing power of the mills and buyers diminishing transactions throughout the supply chain . In the previous week there was revival in iron ore market in tandem with the movements in steel prices it became a veritable ground for speculative transactions. The mills remaining shackled by restricted credit lines and liquidity restrained in buying well supported by peak stockpiles at Chinese ports touching 75 -80 million tonnes.
Recurrent bout of hike in interest rate the last being on 17th April disarrayed definite cohesiveness in the market afflicting the ore market as well. With monsoon in India on the anvil iron ore prices will certainly improve in isolation in the short term. Simultaneously depletion in stock of finished steel couples with flourish in summer demand finished market will certainly overcome the shock and give the suction effect.
The iron ore market in China opened with weak trend on the back of weakening in Chinese domestic steel prices. Iron ore spot prices corrected by 1% on day 2 of week 16 bearing direct correlation with the sinking levels in domestic steel market.
It is reported that iron ore prices started moving down for the last two days and dropped by USD 2 per tonne to USD 3 per tonne (DMT) on CFR basis.
It is heard that while disappointed with steel price trends, Chinese buyers have become conservative and are trying to pull down the market, Indian sellers are likely to hold fort. Remarkably the buying from the steel mills never picked during the last 3 weeks of revival as they were still testing their toe in the cold waters. At the same time the burgeoning stocks of nearly 75 million tonnes at the ports was enough to cater their requirement. Hence most of the transactions were speculative wherein traders were either offloading position cargoes or preparing to take positions.
In this nebulous milieu sellers remain affirmative the current decline might be short lived being tactful move by the buyers. At the same time with not many floating cargos element of uncertainty might be limited to mild correction. Thus uncertainty prevails to the extant of correction.
The conservatism of buyers is natural as the domestic steel market remained quiet for much of last week culminating in correction on Monday. The 4th consecutive hike in lending rate by 0.5% on 17th April further constricted the liquidity of the mills. The Chinese domestic steel prices, which despite tightening by Chinese government were moving up in the first 12 days of April, started loosing ground in last 5 to 7 daysBut again this is going to be temporary phenomenon as the supplies is still a big concern and market may revive after a gap of 15 days once steel mills starts restocking. It is interesting to note that the correction is higher in the lower grades, except below 54/53.
( Source: www.steelguru.com )