Affected by stable investment approval and the onset of QE3, China steel price underwent a hasty and sharp rebound since mid September nearly CNY 200 per tonne within 2 weeks. However domestic steel price rally was closely followed by production recovery coupled with tight capital supply at the end of Q3 steel price gets back to correction starting from this week.

As the approved infrastructure construction of NDRC did not result in substantial steel demand, the retaliatory price rebound was interpreted as the breakout of long range depressed market sentiments.

Due to the drag of long standing lackluster steel market, not a few traders have confronted huge loss and even some of them either go bankruptcy or run away, leaving awful mess to others. This leads to continuous drop in steel inventory at marketplaces as well.

According to SteelHome data, the aggregate inventory of rebar wire rod HRC, CRC and medium plate hit 13.26 million tonnes as of last week, recording a year to date low. Therefore we have seen the shortfall of some products when steel price went up rapidly.

Now, part steel mills are planning to resume production considering rising steel prices. Statistics show that daily crude steel output of large and medium sized steel mills in early September was 1.56 million tonnes up 2.89% compared to that in late August. Furthermore, the production in mid and late September is anticipated to go up further as steel mills still could earn some profit owing to current low raw material prices. But this would break the weak balance of steel supply and demand; burying more pressure for further steel price rally.

What catches our attention is that the tight capital would come since late Q3 and National Day Holiday approaches. As the constructions sites run in full swing now, gradually driving up market demand most traders choose to speed up shipment and this would make steel price to fluctuate within small margin.

Some industry experts dig out deep causes behind all of these issues that to reduce and better steel capacity of steel mills seems more important to digest inventory if we want to break the vicious circle of rapid rise and fast decline of domestic steel prices.

Source: www.steelhome.cn/en, China steel information centre and industry database

(www.steelguru.com)