Chinese domestic steel prices remained almost static last week giving dangerous signals as on one hand on the plea of high costs Chinese steel mills have hiked their EXW prices but on the other hand substantial inventories are not allowing market prices to align them with mill prices. Flat products fared a shade better than longs.
According to latest market report, Chinese steel prices differed last week. Construction steel price saw weak consolidation while HR and CR products prices rose rapidly driven by a strong rebound in the international market.
Construction steel price was in weak consolidation because of insufficient release of downstream demand last week. But HR price had a very strong performance when confidence in Chinese domestic market was increased by the higher overseas prices caused by strong international market demands. And trading was active on CR products so there was also an obvious price hike.
The common argument that higher iron ore prices will push steel prices in China does not hold water as Chinese mills have anyway been buying on spot and higher benchmark settlement of up to 100 pct will not push their costs. Thus the game is driven by growth in demand and growth in steel production rather than other factors.
This situation clearly reflects absolute lack of confidence of market players.
It is reported that in 2010, financial investment will be mainly focused on projects under construction and some new projects may have a certain degree of adjustments. This will influence the release of construction steel demand this year directly. Besides, growth of the part of construction steel demands stimulating by infrastructure investments last year will be relatively slow this year while the production capacity has gradually into the release period. Since inventories of construction steel are at a high level, merchants are not very confidence about pushing up the steel prices. If, for some reason, Chinese steel demand does not pick up the steel mills may face a tough situation in coming times.
The steel prices for flat category improved in China last week. The Chinese Long Product Price Index CLPPI decreased by 4 points whereas the Chinese Flat Products Index CFPPI improved by 65 points. The overall price index CHISPI grew by 35 points.