It is reported that domestic steel market still remains weak with dampening sentiment. Steel price is not only decided by the relationship between demand and supply any more. Many factors have combined to affect domestic steel market.
The first factor is the curb on excessive property price rise which may also restrain investment in real estate industry. Once investment in real estate industry falls demand for construction steel products will decrease. Though Chinese government increases investment in low-income housing projects, steel consumption in such projects is much lower than that of commercial residential building.
It is told by traders that there are certain transactions for construction steel products, proving that demand for construction steel products is still there. However, most consumers purchase steel products according to their real demand and are unlikely to build up stocks due to uncertainties in the future market.
On July 5th NDRC published on its website that there would be 23 key projects in West China financed with total investments of CNY 682.2 billion. These infrastructure projects mainly consist of railways, roads, airport, hydraulic projects and energy projects. This will obviously drive up demand for construction steel.
According to statistics from www.Mysteel.com, steel product stocks in 26 cities totaled some 15.586 million tonnes down 0.85% WoW and 0.68%MoM but up by 70.73%YoY.
During the first ten days of June daily crude steel production averaged some 1.76 million tonnes. As it is dead season for steel consumption at present, destocking is very slow. Though many insiders call on steel mills to cut production, steel mills are reluctant to do so as steel mills that cut production first would lost certain market shares owing to fierce competition caused by the low industrial concentration degree under which no steel mill would like to take the lead to cut production.
Steel mills always try to tough it out when steel price dives and will make money again when the environment get better. Spot iron ore price is lower than benchmark price now. Many steel mills expect benchmark price for Q4 will fall under which they are unwilling to cut production.
The withdrawal of export tax rebates will affect 40% steel exports during the second half. International demand for steel products may hit the ceiling along with the recovery of global economic. At the same time, most domestic buyers adopt wait and see attitude.