Dragon land is never devoid of events either for the right or wrong reason. As the threat of power rationing came to a passé the mills went in a huddle with production pruning plans. More so with the onset of monsoon in China tune was mellowed all through.
State in its unflinching resolve to tame the flaming inflation (May 5.5%) seems set to hike lending rates for the umpteenth time taking toll on the buying.
Construction sector already devastated by the orgy of repetitive hike in interest rate was further enfeebled with arrival of monsoon. At the same time the white good and automobile sector has shown downtrend all through Q1 and Q2.
Major mills sensing trouble ahead have bulked on their prices furthering the gloom. BaoSteel took the plunge first with a reduction of CNY 200 per tonne in HRC prices for June, quickly followed by other major viz., Angang by CNY 80 per tonne and Wugang by CNY 100 per tonne.
Steel prices in China have exhibited a sudden correction after maintaining an eerie silence for over a month.
As a prelude to the power rationing production attained rampaging proportions with the daily average production touched nearly 2 million tonne in the first 10 days of May and ending up with an average of 1.94 million tonnes.
The crude steel production touched an astronomical 60.25 million tonne in May YoY and MoM growth of 7.8% and 1.6% respectively.
The surfeit in production has not been matched by gain in demand owing to restrictive measures by the government to rein inflation. It has not only severely dented the reality sector but also made the execution of state sponsored projects onerous. The much touted goal of building 10 million government subsidized residences this year seems distant. The demand in key consumer segment has slid with drop in automobile purchase by 4% and 11% YoY and MoM respectively.
The dichotomy has cast a pall of gloom over the market sentiments leading to decline in prices in since Monday (13th June).
With the Damocles hanging as the inflation perpetuated by severe drought in China is expected to surge over 5.5% in May more interest hike must be on the cards.
With the seasonality already playing melancholies tune future looks pessimistic. At the same time iron ore prices remaining high the market might looks set for a debacle.
The only silver lining can be with the exertion of production pruning and simultaneous stock depletion would just tilt the balance other way within couple of weeks. At the same time with waning finished prices the current rally in iron ore prices might be short lived clipping the cost push factor.
( Source: www.steelguru.com )