The high concentration in upstream industries and the stable price of iron ore material have always been identified as the main supporting factors of Chinese steel price. However, since the late April, following the sharp fall of steel price, the upstream iron ore price has also begun to loosen. According to analysis, that steel price and iron ore steel price falling in succession is a signal of the market’s downward trend to the bottom.
Last week, Chinese domestic steel price created a new low, as rebar spot price fell to CNY 3975 per tonne, down by CNY 109 per tonne or 2.67%. Steel spot price in Shanghai fell to CNY 3770 per tonne, down by CNY 90 per tonne. According to statistics, Chinese domestic steel price has fallen by more than 20% ever since the mid April when the announcement of steel export tax rebate cancellation came out.
The Brazilian mining giant Vale predicted in the beginning of June that iron ore price would rise to USD 145 per tonne up by 30% to 35% in the third quarter, which is a firm support of steel price. However, Chinese steel mills begin to reduce production because of losses, and the government’s regulation policies have brought about much negative influence to the market, both resulting in the price fall of iron ore.
It is noticeable that the bottom price in Chinese steel spot market has already changed due to the fall of material price. Last week, main Chinese steel mills adjusted EXW prices of 76 types of steel products. The price fall of steel and iron ore in succession pressured steel mills and traders the same.
On one hand, taking risk into consideration, banks are more and more cautious about lending as the steel market is gloomy now. On the other hand, it costs much more for steel mills and traders to borrow money through business financing methods. So both steel mills and traders need to clear stocks more quickly, which will cause market price to fall further in return, and a vicious circle is created then.