From the middle of July Chinese domestic steel market was growing. In five weeks the price of commercial HRC in large cities of eastern provinces increased by about $60 per ton and exceeded 4250 yuan ($626) per ton from the stock. At the same time Chinese companies raised export quotations. In the middle of August the price for HR steel micro-alloyed with Boron reached $620-630 per ton FOB. Plate price increased to $630-650 per ton FOB.
However, with the beginning of the second half of the month the prices started decreasing. HRC prices fell as in domestic as in foreign market by $20-30 per ton. The prices for Chinese products supplied to Korea, India, and South-East Asia decreased recently to about $600 per ton FOB. Generally the market is not stable: according to analysts both flat steel prices increase and decrease are possible in Sep.
The prices can grow due to autumn business activity increase in China and other countries. Besides, the manufacturers insist on the prices increase. Baosteel keeps EXW prices for HRC in Sep. at the same level but decreased the discount for distributors by 150 yuan ($22) per ton. Other large manufacturers, such as Angang, Shougang, Hebei Steel, and Wuhan Steel announced the increase by 100-300 yuan pet ton.
According to the analysts, Chinese manufacturers have to raise the prices due to raw materials costs increase. In recent two months iron ore price increase by more than 20%. Average production cost of HRC is estimated by CISA as 4200 yuan per ton. Thus at the current market prices the manufacturers almost do not get their profits.
Negative factors will also affect the market in the nearest future. First of all, macro economic forecasts do not look very positive. GDP and industrial production growth rates in China are slowing, although remain peak high as compared with global norms. Chinese Government and Chinese national Bank recently announced the possibility of loan policy tightening. The situation in real estate market has not been stabilized as well.
Speculation played significant role in the increase in Chinese market in July and early August. Many traders bought rolled steel relying on the increase in Sep. According to CISA speculations furthered iron ore price growth. Meanwhile real demand for steel products in China remains rather stable. There are no signs of the increase.
In June and July Chinese companies reduced steel output volumes. According to CISA in the third decade of July this figure amounted about 1.64 mio tons a day. The prices increase furthered the return of the stopped capacities. Thus in early August 26, 2010 about 1.72 mio tons of steel a day were produced in China. As per the results of the month this level can even increase, so that there is a threat of overproduction in Chinese market again.
In July Chinese metallurgical companies worked mainly for the domestic market. HRC export volumes reduced in July to 1.38 mio tons against about 1.8 mio tons in June. According to the experts the supplies to the foreign market will decrease again in August. One of the reasons is negative situation in Eastern Asia market, another reason is the Governmental decree about VAT refund cancellation (for HR exporters) that is in power since August 15. But Boron micro alloyed steel supplies are not subject to this decree.
Nevertheless in Sep. Chinese companies can again expand steel products export volumes, especially if the fall in domestic market resumes due to the overproduction. The stability of Chinese market will depend on the national economy condition. If domestic demand expands rapidly, the market will temporary “close its eyes” at the excessive supply and stockpiles. The nearest neighbors will see the weakness of China at once.