Recently, the high demand arising from construction industry and the shrinking social inventory have jointly pushed the steel price in China upward. Therefore after the previous loss of quite a long period, steel price is able to rise above cost.
Steel enterprises in East China now have managed to balance profit and loss, but disadvantageous news such as the change in real estate industry, government’s macro control of currency inflation and the decline of steel export has planted a hidden danger on China’s steel market. Good news is decreasing, while bad news is accumulating, so the future uptrend for steel price may not be that smooth.
Strong demand from construction industry
Supply and demand relation is the primary factors behind the recent surge of steel price, which can be clearly demonstrated by the shrinking inventory of rebar steel. From January to July, newly developed housing area has reached 9.22 b m², up by 67.7% correspondingly. Large scale real estate development has strengthened the demand for construction steel, and oversupply is also improved thereby.
Cost rises fast than steel price
In recent days, the prices of iron ore, steel scrap and billet steel have all increased by different degrees, the speed of which is obviously faster than the price rise of steel products. For example, the third-degree rebar in Shanghai district has risen from bottom to no more than CNY 300 per tonne, while the imported iron ore price has risen above CNY 200 per tonne. Calculated on the basis that each tonne of rebar will consume 1.5 tonne of iron ore, the CNY 300 per tonne price of steel can just be offset by the current iron ore price which has not yet contained the price rise of hard coke and steel scrap.
The current surge of steel price hasn’t been accepted and digested by downstream demand that is why risks are also accumulating when the steel price is rising.