People Daily reported that Chinese steel prices have rallied for a fifteenth week in a row amid massive overcapacity and surging stockpiles. And prices for construction steel have averaged over CNY 4,000 per tonne far exceeding other products rising amount and increasing correction risks.
Mr Sheng Zhicheng information supervisor of Xiben New Line Stock a modern online e business platform for bulk commodities like steel on August 3rd said "The price rise is really crazy and far beyond our understanding. Price for construction steel climbed almost CNY 300 per tonne on that day in Shanghai market.”
However, marketers noted that market demand has not run up in tandem with surging prices and social stocks also stay high. And steel market seemingly to undergo a crazy period featuring high production, high stockpiles and high price.
1. Production roars up again
Domestic steel mills would rush to ramp up production once profit margin returns. And due to the most fragmented industry, every mill wants to crank up output earlier than others to secure higher profit, resulting in a distorted market.
Statistics show daily crude steel output reaches 1.49m tons in May the highest since the second half of last year but it hits a record 1.65 m tons in June, which level is equivalent to annual output of over 600m tons.
Market players said the level is really too high and according to Mr Wu Xichun honorary chairman of China Iron & Steel Association, overcapacity stays as the key problem in China steel sector. Market balance can hardly be restored since mills accelerate production once market shows sign of recovery.
Mr Wu said the price rally cannot sustain for long amid so high output level and the continuous negative export growth. Correction risks are increasing at the moment amid the oversupply.
2. Construction steel price rise far exceeds others
Mr Sheng wrote on August 3rd that "Market is heating up, and Jiangsu Yonggang again raised steel prices by CNY 300 per tonne while rebar prices climbed CNY 200 per tonne to CNY 250 per tonne and wire rod advanced by some CNY 300 per tonne."
Construction steel price posted wild rally recently, with price rise percentage far exceeding other products driven by relentless ex works price rise at steel mills and rising futures price. Recovering economy led demand rise is the basic reason behind the current wide price rise. However, the lending spree also helped a lot since it increased speculative trading among traders.
3. Stocks advance amid low demand
Most marketers admit the positive effects brought by the central government’s stimulus plans however they suspect its’ sustainability.
According to survey from CISA, major steel products stockpiles are higher from a year ago. Mysteel analyst Mr Yu Liangui said "Domestic social stocks have not been effectually digested since the year start." Hot rolled coils inventory in Shanghai market surged to 0.85 million tonnes this year versus the traditional 0.5 million tonnes to 0.6 million tonnes.
Construction steel products like rebar which eyes favorable market stocks all the time, now also witnesses increasing stocks in Shanghai and rising supply pressure.
(Sourced from MySteel.net)
Visit www.Mysteel.net for real time access to China steel news!
