Rusmet.ru, Victor Tarnavskiy/ When steel manufacturers in Western and CIS countries were on vacation, their Chinese peers did not waste time. In two weeks of holidays steel products prices in Chinese domestic market increased by about $20-30 per ton.  By the beginning of the second decade of January average market quotation for commercial HRC exceeded 3900 yuan ($571) per ton from the stock; the average market quotation for commercial CRC of 1 mm thickness exceeded 5450 yuan ($798) per ton.

This uncommonly big difference between HRC and CRC prices is explained by, first of all, the demand for CRC in Chinese market. Cars and housing appliances output has been growing in recent months. The Government prolonged customer goods buying stimulating programs for another year. Besides, peak decrease of air temperature affected steel products supplies, including CRC and galvanized steel, from north to south of the country. 

At the same time HRC are the most excessive kind of rolled steel in Chinese market. According to Mysteel’s estimations, in 2009 32 mio tons of HRC rolling capacities were introduced. Rolled steel stockpiles in China increased averagely by 80 % last year, HRC stockpiles increased by more than 2.5 times.

The fact that HRC prices continue to grow despite overcapacity and lack of demand shows, first of all, the pressure of the suppliers on the market. All key manufacturers of HRC in China announced prices increase in January; the leader of the industry, Baosteel raised the quotations on February contracts by

5 % averagely. At that new price for SS400 coils of 2.75-3.0 thickness will exceed 4000 yuan ($586) per ton EXW without VAT. The traders have to increase the prices accordingly.

Although there are the signs of another speculative “bubble” in Chinese market, local analysts consider the prices growth reasonable and forecast its continuation at least till Chinese New Year (Feb. 14). These forecasts are based on positive expectations of the market participants. According to the metallurgists’ and traders’ opinions, the demand for steel products in the country will widen, which will allow avoiding fall even in the situation of excessive supply and stockpiles.

The Government of the PCR says that economy growth rate in China will amount in 2010 8-10 %; some analysts of forecast even bigger increase - up to 12%. At that this growth will be reached to a great degree by means of the stimulating of domestic demand as for consumers goods as for industrial equipment and building materials. The government tries to find the balance in loan policy between real sector of economy financing volumes and national banking system stability. However, in any case the result means significant “money injection”. According to the Chinese Ministry of industry and informational technologies, in 2010 the investments to key assets will increase by more than 20% comparing with 2009.

Certainly, the government is not happy because of uncontrolled increase of steel output. As per preliminary data the output in Dec. exceeded 50 mio tons and the result of 2009 amounts about 569 mio tons. Chinese metallurgical association CISA forecasts steel output increase in 2010 by 8.6 % to 621 mio tons, however, its forecasts are usually underestimated. Anyway the government made sure that limiting of steel output in China makes no sense, That is why they stimulate the demand.

Steel products prices increase in China has another important aspect. Chinese metallurgists have to raise the quotations due to acute increase of raw materials prices. Iron ore price in Chinese spot market exceeded $130 per ton CIF (63.5% Indian concentrate). The prices for Brazilian and Australian concentrate exceed $150 per ton FOR. In recent four months imported iron ore increased in China by more than 50 %. Prices increase by 20-30 % is forecasted on yearly contracts (new prices will come into power in April). Besides, obviously in the nearest future coking coal price will rise. Expensive raw materials decrease competitive ability of Chinese companies in international market. By the beginning of the second decade of February Chinese HRC price reached $550-570 per ton FOB, commercial plate - $560-590 per ton FOB, and CRC - $680-700 per ton FOB on February contracts. The suppliers from other Eastern Asia countries used this jump for increasing of their products’ prices. In the beginning of January HR steel in the region reached $570-590 per ton CFR, and Japanese companies are planning to increase HRC prices to $600 per ton FOB, and CRC - to $700 per ton FOB.

Before New Year holidays Russian exporters supplied HRC at about $520-530 per ton FOB. In current situation their products become compe5titve in Asia. In particular, Severstal started offering HRC to India at $590-600 per ton CFR with the delivery in March-April.

Nobody knows today the price for steel products in Asia in the beginning of the Q2. This restrains the buyers from big contracts on Russian and Ukrainian flat steel. From one hand, the perspectives are rather positive; from the other hand the growth continuation is possible in stable or growing Chinese market. Last year overestimated expectorations of Chinese metallurgists and traders regarding steel products demand increase after New Year holidays turned to the acute fall. Today such scenario is possible.

Nevertheless steel prices in China usually fall in direct ration with the rate of foregoing increase. If Chinese companies continue to increase market prices by $20-30 a week in the second half of January and the beginning of February, the slump in late February will be inevitable.  At the same time gradual and slow growth gives good chances for sustainable progress in next two or three moths.