Flat product bench marker HRC has over the past 3 months taken an uneven trajectory. The 3 main sources of Ukraine, Russia and China have moved at an unequal pace nonetheless having moments of convergence. As the pot purri frothed with churnings in the domestic market it had lucid impact on the export market.
Whereas each nation had their compulsions and agenda running concurrently a definite pattern is observed upon dissection.
Commencing from March end (Week 12) the export levels from China and Ukraine where at par however Russian mills maintain an apocalyptic high. This being the peak demand season in China whereas the CIS brethren are just waking up. It is noteworthy that the Chinese demand remained uncharacteristically subdued post Spring Festival owing to deflationary measures adopted by the government. The Ukrainian mills on the other hand were relapsing owing to poor demand from Europe and the insinuations of MENA crisis.
However as the weeks progressed the Chinese offers remained somewhat resilient but there was collapse in the Ukrainian prices as the demand booking failed to pick up in its natural markets. The Chinese levels were comparatively buoyant and picked up towards Mid April with rally in domestic levels cascading on to the export offers. The domestic prices picked up and held steady for nearly a fortnight in China as the pent up seasonal demand was released, leading to stock depletion. At the same time hike in iron ore prices kept the levels afloat. Hence despite a marginal flick in international demand the export levels obdurate under duress.
In fact during this period there was a deep inflexion in Russian rates as well due to emaciated domestic fundamentals. Into the thick of May the Chinese levels started wavering after the May Day holidays with the buying tempo again succumbing to the lending rate hike. However the Russian and Black Sea mills exhibited typical seasonal revival with firming of domestic levels. The materials were finding their way to India and to lesser extent in Europe wherein the domestic mills where sitting at a high cost price levels.
Week 19 and 20 can be called a period of convergence wherein the Russian levels and the Chinese levels attained parity the former riding crest on reverberant domestic demand as Summer picked up leading to growth in demand from the white good , construction and the automobile industry. Remarkably Ukrainian mills fluctuated on an identical trajectory with the Russian mate at a much lower level. The prime reason being the Black Sea mills being export dependant languished as the MENA crisis and the European demand lagged.
Towards the end of the Q2 a definite dip in Chinese levels are seen which brings it at par with the lesser Ukrainian brother as the domestic levels in China plummet yet again as monsoon draws close and the domestic demand and production slump . This is in turn explains the export levels from China on pillaging mission maintaining an advantage of about USD 30 per tonne to USD 40 per tonne over Russian and Indian offers and marginally competitive with the Black Sea levels.
As the MENA nations attain normalcy and Europe sitting over a keg for the entire of Q1 & Q2 there is expectancy but not immediately. For the time being Chinese domestic levels receding with each passing day at brisk pace whereas the Indian domestic market is sinking in a deluge of its own creation. The Middle Eastern market which is long centric has got a miniscule role to play in flat products. Nonetheless summer being a period of low demand the occasional blips can be imputed to stock replenishment and speculation rather than sustainable demand.
At the same time Europe which was expected to unleash demand seems to be sinking in string of financial crisis the latest being Greece debt crisis which seems potent to engulf Spain and Portugal as well. Consequentially rapid devaluation of Euro will make imports unviable.
The Chinese domestic prices will continue to remain subdued at least till August under monsoon. At the same time the runaway inflation at 5.5% in May has done little to spruce the market as the government remains steadfast in hiking the lending rates .However end of Q3 and Q4 might just provide a whiff of fresh air as the 10 million budget housing project will have to be completed leading to generation of additional demand. However the reality sector punctured by the deflationary measures should not look for any respite.
The production pruning in China owing to power rationing will also nudge demand as the stocks deplete gradually.
( Source: www.steelguru.com )