Despite a resurgent production and marginal depletion in stocks the misery has intensified with each passing week in China. June has been agonizing with the prices in domestic market plummeting with renewed vigor as the monsoon approaches. Rubbing salt to the injury is the orgy of power rationing taking toll on the production which is some respect might prove to be a blessing in disguise in the sluggish market.
Much of Q1 & Q2 was plush with record breaking production figures touching pinnacle of 60.25 million tonne in May a climb of 7.8% YoY with daily production roaring at 1.96 million tonnes. Much of this flourish has been imputed to the urgency on part of mills to stockpile steel before the draconian power rationing is clamped pruning production.
Esoterically demand has been elusive in the peak of season (spring and summer) primarily because of recurrent hike in lending rate scuttling business in reality, automobile and white good sector. Government faced with the twin devil of runaway inflation and slackening growth opted for the former on a cautious note. Resultantly the much touted construction of 10 million budget houses suffered badly with only 30% job starting by May end.
Despair is the progenitor of prophesy. Missed opportunities in the present certainly sows the seeds of future demand as the year draws to close and the targets become compulsions. It is estimated that towards the end of Q3 and whole of Q4 will see redemption of the demand growth. The culmination of the housing project will gobble up 6 million tonne. However, up to two thirds of this demand will be for rebar, a product in increasingly short supply in China igniting the price surge. Demand from these projects is expected to push Hot Rolled Coil and Rebar spot prices close to parity in the October to December period at CNY 4700 to 4800 per tonne (including tax).
After the rationalization of production demand dichotomy of June-July resurgence is on the cards with an anticipated 176 million tonne production on Q4.
All said and done the whole capital sector is leased and traders are in a wait and watch attitude focusing on destocking. Any revival is possible only after inventory depletion. The Damocles of further tightening of the lending rate might be spoilsport.
( Source: www.steelguru.com )