Monday Market Monitor - China (WEEK 51) - Intransigence continues - – 23 Dec 09
The steel prices improved in China. The Chinese Long Product Price Index CLPPI increased by 48 points whereas the Chinese Flat Products Index CFPPI improved by 93 points. The overall price index CHISPI grew by 73 points.
Baosteel announced on December 10th 2009 that prices of most steel products will rise by CNY 300 per tonne to CNY 600 per tonne in January 2010. This news is likely to trigger chain reaction in the Chinese domestic steel sector resulting in a rise of domestic steel prices.
The gist of the announcement is as under
1. Plates - CNY 50 per tonne (USD 7)
2. HR - CNY 300 per tonne (USD 44)
3. CR - CNY 550 per tonne (USD 80)
4. HRPO - CNY 400 per tonne (USD 58)
5. HDG - CNY 400 per tonne (USD 58)
6. EG - CNY 600 per tonne (USD 103)
7. PPGI - CNY 300 per tonne (USD 44)
BaoSteel’s move could be propelled due to following factors
1. Strong demand from some of the consuming sectors of flat products like automakers etc.
2. Increase in global levels of HR, with Russians and others looking for hike WoW, could also be a factor behind the decision to hike prices.
3. Tightness in coking coal market as well as the news of 20% to 30% hike in iron ore prices is bound to put cost pressure and needs to be nullified to some extant.
4. Although it is off season to some extant due to winters and being end of the year, consumption is likely to surge in January and as a result spot prices will be increasing.
5. In addition, users and traders, to a certain degree, would start pre spring festival buying putting market in a flurry.
BaoSteel’s price hike, being the price setter, announcement has demonstrated the usual effect on Chinese steel market. Wuhan Iron and Steel has already followed the suit and others would surely join the band wagon.
However, with overcapacity and high inventory Chinese market has no capability to support a substantial increase in steel prices. Moreover the pressure on steel inventory after prices hike will cause again cause downward pressure on steel prices adversely.
But we believe that the decision makers in BaoSteel know better and thus Chinese steel market is going to be firm in coming year with strong prices
China Securities Journal cited Mr Qi Xiangdong vice secretary general with China Iron & Steel Association at the 2010 Mysteel Annual Conference on December 12th, five major factors will help back up the reasonable steel price level for 2010.
1. They are continued government economic stimulus policy
2. The recovering steel export
3. The devaluated US dollar
4. The speeding up obsolete capacity elimination
5. The rallying global manufacturing.
He explained that the reasonable steel price level comes from reasonable price relations between downstream and upstream sectors and also on the basis of basic demand/supply balance.
The government just announced that it will continue the properly relaxed and positive financial policy, a sign that domestic demand will keep strong the next year.
However, Mr Qi also said that in 2009, China eyed both recorded highs in production and apparent consumption in steel industry, low hovering steel prices and deep decrease of industrial profit, all combining to become challenges before the steel industry.
He gave capsule review and interpretation of the steel industrial situation in this year
1. The crude steel production and apparent consumption in 2009 will both beat 565 million tonnes
2. China steel export tumbled reflecting the dwindling global demand, with the net export of crude steel expected to hit zero, sharply compared with 47 million tonnes in 2008
3. Long products take more proportion of the total steel products, which accounts for 65.6% of the YoY increased 75.38 million tonnes of steel products during January to October
4. Steel price was circling on the low track
5. Profit of 70 steel mills slumped 70.67%YoY and sheet and plate businesses in particular fell in a pinch.
He said that with the accelerating steps in washing out backward capacity, it is essential to check the expansion of long products which are mainly consumed in domestic market, though highly needed, affected by Shanghai steel futures prices. So he suggested that the vehicle of steel futures be applied correctly as a hedge for enterprises and in favor of the market stability.