The market sentiments got a breather after an unbroken melt down of last 75 days. It was just when death knell seemed to have besieged the market chips showed revival due to certain dormant positivity in the market.
1.Production cut on cost pressures
Chinese steel mills are facing huge cost pressures due to low realization and are making very low margins. For example, the cost of rebar production by small steel factories is around CNY 3400 per tonne and the spot prices for rebars in 20mm in HRB 335 grade was hovering around CNY 3300 in Shanghai steel market for last two weeks. In other words many steel mills had been loosing money. Theoretically speaking, these loss making steel mills should cut production to contain losses reducing availability thus creating positive price scenario.
2. Raw materials on up trend
In all likely hood iron ore material price will be stable as China is trying to find a suitable way to handle the new negotiation of iron ore and is currently buying major quantities on spot basis, which are higher than benchmark prices. The stable trend is bound to support steel prices.
3. Downstream consumption increasing
The downstream consumption refers to real estate and construction industry. The real estate development is up by 11.5%. Apparent consumption of rebars increases by 34% YoY in second quarter this year. Both of these increase the confidence of the revival of Chinese steel market.
Overall, the increasing market price, improving economic situation and traders’ regained confidence will help Chinese steel market to recover. But it remains uncertain that this recovery would be permanent as Chinese steel market is saddled with very high inventories and huge over capacity.
The Chinese Long Product Price Index CLPPI improved by 87 point whereas the Chinese Flat Products Index CFPPI showed a health growth of 103 points . The overall price index CHISPI improved by 96 points.