Starting from last week, domestic steel price began to slump after consecutive 17 weeks’ rising. Till Aug. 19, the domestic steel price of key species decreased CNY550-950 per tonne or 20 percent. “Overcapacity was the key factor bringing down steel prices”, Shan Shanghua, the Secretary General of China Iron & Steel Association (CISA), said, “steel price will remain downfall if no measures taken to curb the massive capacity”.
Marketers believed that current steel price decrease in off season was a reasonable correction after price surge in prior time. Steel prices were expected to rally in Sept. underpinned by real-estate industry pickup.
From Apr. to early Aug., domestic steel price of key species gained a minimum increase of 30 percent. An analyst indicated that government’s CNY4 trillion stimulus packages revitalized domestic steel demand in early Q2 2009, as a result, steel inventory logged a successive decrease during March- May and steel prices began to hike as a whole in mid-April.
“Overspeed expansion of domestic steel production during June-July resulted in supply surplus, meanwhile most traders hoarded products during price upswing” Mr. Shan said, “Currently, everyone is underselling their resources on the insufficient demand”.
According to the data by CISA, the inventories of main species increase again in July after four-month consecutive decrease.
Currently, the spread between local market price and steel mills’ ex-works price widens to as much as CNY 1700 per tonne. Ding Zhiqiang, an analyst from Baosteel said that the low market price was affected by adequate demand from downstream industries and would force steel mills to bring down ex-works price.
Mr. Shan held pessimistic attitude towards the future market. He said it was difficult to see price increase if massive production sustained in the second half of 2009, net imports this year would worsen supply surplus further. It is a tough year of all steel mills as the manufacturing cost (including iron ore and coke etc.) also increased along with steel price hike. Shan doubted the stimulus effect of real-estate industry in the second half year.
In the first seven months, large-scaled steel mills suffered losses in their core business, and most profit came from the investment.
However, Mr. Ding takes a different attitude. Ding believed that steel industry would enter into the traditional booming-season during Sept.- Oct., and there was still 20-30 percent spread between the current price and the highest record of last year, therefore, steel price would see uptrend accompanied by periodical correction.
Source: www.steelhome.cn/en