Chinese steel price movements have belayed global trends in entirety exhibiting an independent trajectory proving once again its self sustaining independent character. It can be aptly said when China sneezes, rest of the world catches cold.
The domestic sentiments have been driven by factors within rather than without ranging from the pompous stimulus package of USD 585 billion, augmented demand from auto sector, psychosis of shortage culminating in Himalayan stocks, obdurate posture of CISA in iron ore price negotiations hampering cost effectiveness of the mills as sending spot prices in tizzy.
An analysis of the price movements since October elucidates consistent improvement across all kinds of products in the last 45 days. The trend is becoming stronger with each passing day with year end holidays on the anvil as more buyers want to stock before New Year and Chinese Holidays.
Steel majors riding the crest are vying to increase prices. The tone was set by Baosteel announcing on December 10th 2009 a hike of CNY 300 per tonne to CNY 600 per tonne in most flat products for January 2010. This was promptly followed by Wuhan Steel who announced a hike of CNY 100 per tonne to CNY 550 per tonne for some HR, CR, galvanized and silicon steel products for January 2010 over December levels. The latest to join this privileged club are Angang, Shougang and Benxi jacking their January prices by CNY 200 per tonne to CNY 650 per tonne, CNY 390 per tonne to CNY 650 per tonne and CNY 100 per tonne to CNY 300 per tonne respectively.
Some of the factors having immediate bearing on this price hike are as follows
1. Strong demand from some of the consuming sectors of flat products like automakers, white goods and pipe making.
2. Increase in global levels of HR, in Ukraine, Russia, USA and Europe etc 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. The reference price of coke in Shanxi in December is now CNY 1750 per tonne up CNY 50 per tonne from October.
4. High scrap prices
5. Hike in freight by 7.28% by China railway
6. Although it is off season to some extant due to winters and being end of the year, consumption is likely to surge in January before the Chinese holidays.
One of the pitfalls of rising steel prices is weakening leverage of mills in China vis à vis mining majors for price reduction. It has already triggered hike in spot prices of Indian iron ore by 6% in the last 2 weeks touching levels of USD 110 per tonne CFR China.
The accumulated punch of these factors will keep the market buoyant as the New Year dawns making it enthralling in letter and spirit.