In September 2012, raw materials and steel prices showed mixed trend and some steel companies took the opportunity to turn losses into gains. Estimation showed that the daily crude steel output in the middle ten days of the month slid 4% from the same period in August 2012 and the steel stocks in key steelmakers dipped 7% compared to the middle ten days of August 2012. Social inventory presented the first rise after ten weeks' decline. Downstream demand kept tepid without making highlights.
In October, mills adopt flat prices and BaoSteel announced to maintain medium plate prices unchanged for November 2012 deliveries and WISCO also choose to lift prices amid overall steadiness. Will other mills follow suit?
1. Ex worker price vs spot price
Ex worker price and spot price differentiated much in the past month, and major steel mills keep prices firm in October 2012. The price gap between ex worker price and spot price in September 2012 narrowed down except for CR products and galvanized steel which showed slightly enlarged gap. Pushed up by steel mills' firm prices in October 2012, spot prices started to pick up. This does not bring mills' further lift of prices, implying that steelmakers are quite cautious towards future market.
Spot rebar price rebound highly in later September 2012, incurring mills' catching up. Shagang, China's top construction steel supplier, raised prices of rebar II by CNY 150 per tonne to CNY 3700 per tonne from the previous ten day period in September 21st 2012. It is the first time the company lifted prices since later April 2012. After price lift, its ex work price is CNY 80 per tonne higher than the spot price in Shanghai, while still CNY 109 per tonne lower than the average level since 2009. The company put forward pricing strategy for the next ten days ahead of schedule due to the coming of National Day Holiday. Again it chose to lift prices, but the gap was kept around CNY 80 per tonne. If spot market continues to seek upward, there would be room for ex work rebar price to surge further in future.
2.1 macro economy
Hesitating economic recovery in US, lower than expected new employment, and possibly more harm than good QE3 in long term view accompanied by deteriorating economy in EU and hovering unemployment in the region make the global situations complicated and puzzled. China's economic slowdown and dim industrial added value and consumption as well as falling back of fixed assets investment after fleeting rally are among the negative factors. But offsetting by infrastructural constructions and the nation’s measures for stabilizing growth, steel industrial PMI started to head upward in Sep. it is also expected that demand would warm up in later period.
2.2 supply & demand
Daily crude steel output in large and medium sized steel mills in the middle ten days of September 2012 declined by 2.73% from the previous ten day period to 1.523 million tonnes and domestic figure is estimated at 1.8565 million tonnes, down by 2.01% from the ten days prior. As learned, small steelmakers has more passion in production resumption and now mills capacity utilization ratio reached above 86%. So, CISA's estimation probably understated the real situation and supply will still be excessive in future. CISA's statistics also show that key steel mills' stock has reached 11.6 million tonnes by the end of middle September 2012, down by 7% from the same period last month.
Social inventory of steel show the first rise after ten weeks' plunging and the figure collected from major cities on October 8th 2012 is recorded at 13.51 million tonnes, losing 600,000 tonnes or 4% from one month ago and plummeting by 1.68 million tonnes or 11% YoY. The current destocking is comparatively thorough than usual and makes preparation for future stock building.
Downstream demand is awaited to get improved. Property investment and new operation area displayed upward trend, but developers' confidence is not firm plus Nanjing restated its order in house price control. Real estate investment is of uncertainties in future. Auto industry runs well but machinery, home appliances and shipbuilding sectors remain in sluggishness.
To sum up, it is forecast that major steel mills would hold price up amid steadiness, following suit of Baosteel and WISCO. The upbeat of spot price seemed soften down, but driven by active trades of downstream users and traders, steel mills would choose to lift price other than cut it. Moreover, from the beginning of the year, mills are hardly seen pushing up prices and to finish the yearly gaining target, they would raise prices in November 2012. The tick up of different products may vary with each other.
Steel products price changes
|Steel products||Price changes in Oct||Price changes in Nov (expected)|
|HRC||-30 to 0||0 to 200|
|CRC||-200 to -100||0 to 100|
|Rebar||50||50 to 150|
|Galvanized steel||0||0 to 150|
|Color coated steel||-250 to 0||-100 to 100|
In CNY per tonne
Source - MRI