Chinese Steel market has always been the cynosure of everybody eye as its gigantic proportion asserts its importance in the global steel industry. The dynamics in the global market are directly proportional to the undulations in Chinese domestic market.
Contemporary market is abundant with factors viz., soaring iron ore prices, inventory levels, demand supply mismatch, policy measures etc to fix the co-ordinates of market logistics.
The uncanny flurry in Chinese levels over the last couple of months in a typically off season has once again raised eyebrow. It is typical of the dragon land to throw surprises for mysterious reasons which needs pondering to unravel.
The corroboration of factors which led to the rally is input cost centric rather than demand pull:
1. Spike in iron ore prices by 14% in the last 2 months all set to eclipse the heights of pre-recession period with the milestone figure of USD 200 per tonne in sight
2. Soaring Coking coal prices
The ensuing rattle in the market has made mills firm in prices, traders stockiest sacrificing tonnages for price buoyancy. As the setting is complete for relentless ascendancy after the Spring Festival (2nd - 8th February) when the peak consumption unfolds.
The 3 key areas expected to bolster the consumption are
1. Construction apart from housing, renewable energy and water projects.
2. Social Housing - China plans to build 10 million homes up 72% from 2010 in the social sector
3. Railways- construction of metro lines
This eliminates the chance of any relapse in input prices as the demand for finished picks up. Moreover the iron and raw material will continue to be plagued with shortage leading to price escalation.
Sensing the mood most of the major manufacturers in China have hiked steel prices for February to the tune of CNY 100-200 per tonne.
The likely dampener being the anti-inflationary measures and environmental norms being assiduously pursued by state might put a cap on the stated price frolic nonetheless the sheer strength of demand and speculative forces will tilt the balance towards revival initially.