2011 can certainly be christened as a Watergate year in Chinese steel industry with market dynamics defying set traditions and seasonality factor. An all pervasive gloom beset the market with its parasitic connotations for the entire year.

Ironically the hallow of 2009 and 2010 revelry fizzled out in early 2011 with the state hell bent on reining a run away inflation which threatened to take away the sheen of remarkable growth in Chinese economy and demand in the aftermath of 2008 recession . As the reality market inflated exponentially so did the concern of another burst as the price escalation was unsupported by demand. It seemed the monster of speculation has yet again come to haunt the market.

The resultant knee jerk over reaction by the government by hiking the lending rates clipped the wings of the market in spring of demand. Post Lunar Holiday is typically beset with enhanced construction activity and business transactions culminating in buying.

Paradoxically the prices after a momentous spurt leveled off as PBOC tightened its noose on the interest rates. Buying remained need based. With the government remaining firm in its conservativeness demand never picked up even during summer a period of flurry in construction.

CLPPI - Chinese Long Product Price Index
CFPPI - Chinese Flat Product Price Index
CHISPI - Chinese Steel Price Index

Iron ore prices despite lukewarm finished market remained stubborn. Coke prices riding the crest on force majeure in Australian mines provided an indomitable thrust to the costing of Chinese mills. Mills were unable to kindle buying despite doling out discounts during Q2 & Q3. Significantly the inventory levels in the market remained high around 14-16 million tonnes during this period.

Despite a correction in Coke prices in Q3 iron ore prices remained stubborn. Inauspicious August spilled can of worms with downgrading of US economy and deepening of European crisis having a cascading effect on the Chinese economy being its biggest trading partners. Sinking of the bourses around the globe spelled doom for the market sentiment which had barely revived in the previous 2 Quarters. After brief sparkle in the penultimate week before the National Holidays imputed to speculation about price hike and stock replenishment before winter the market could never stand even on crutches.

On the contrary mills were compelled to prune production which fell consecutively from September to November from 55 million tonne to 49 million tonne. Iron ore prices coiled by nearly 31% within a month signifying the intensity of devastation. Despite severe correction on domestic and export levels transactions remained low. Neighboring market being shut out with ameliorated capacity in Korea and lackluster demand in Japan Chinese mills were trapped in double girdle.

November and December has been relatively quiet with market clinging to status quo. At the same time unending debt crisis in Europe hasn’t given fillip to sagging market. Iron ore imports and have remained subdued at lower levels as Brazilian and Australian miners swiftly stepped into the shoes of Indian suppliers. Iron ore stockpile nearly 100 million tonnes over the Q4 mills remained aloof.

Dreaded inflation has stagnated at modest level of 7%. Government made a feeble attempt at loosening the credit by reducing the lending rates by 25 basis points. However the market did not respond stoically with buying remaining unchanged even on the eve of winter vacation.

New Year doesn’t seem to swing magic wand however before the Lunar Holidays (28th January) improvement in buying and prices is plausible at least to replenish skeletal stock. US economy is on revival course but with European scenario remaining ambiguous horizon is hazy.

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