Feb. 26 (Bloomberg) -- Steel prices may extend a two-month decline in China, the largest consumer and producer, as inventories swelled, raising concern that supplies are outpacing demand.
Stockpiles of steel products in China, including those held by traders, producers and end users, are estimated to be more than 90 million metric tons, according to China International Futures (Shanghai) Co. This is a record and equivalent to about two months of domestic crude steel production, said Shanghai- based analyst Huang Huiwen.
“There is so much steel lying around that the warehouses are full,” Huang said in an interview today. “Ships coming in have no more places to unload and are piling up at the ports.”
State-owned researcher Beijing Antaike Information Development Co. last month estimated the total stockpiles of steel products in China exceeded 50 million tons. This compares with an estimated 18 million tons a year ago, analyst Ma Haitian said Jan. 25.
Steel reinforcement bars and wire-rods on the Shanghai Futures Exchange are headed for a second monthly decline, the longest since futures started trading in March 2009, as commodity prices slumped after China moved to cool its economy.
The country’s central bank on Feb. 12 raised the amount of deposits banks must hold in reserve for a second time in as many months, prompting speculation China may raise interest rates and other implement measures to prevent asset bubbles.
“Demand hasn’t been as robust as many expected, so we’re not going to see an improvement in prices until some of these stockpiles get run down, hopefully by the peak construction period in April and May,” said Huang. “Meanwhile, domestic production keeps increasing, which adds to price pressures.”
Crude steel production in China expanded 14 percent to a record 568 million tons in 2009 as the government’s $586 billion stimulus package boosted demand from the construction and automobile sectors.