Hackneyed analysis of the debacle in steel market in China glosses over the depth of malaise. A slight reflection at the key indicators is imperative to have clarity on the developments since 2011. H1 of 2011 was the last peak achieved in the Chinese steel market.
Hard landing in the last 4 days by 3% even though most painful in the last couple of years is by no means sudden. It is culmination of persistent repression of credit lines by the state in its overdrive to rein inflation. It has led slump in buying activity in vital sectors viz., infrastructure, reality, auto and white goods.
Rubbing salt to injury US and EU economic crisis has suddenly scuttled export avenues for the Chinese mills. Moreover mills have been in production overdrive all through accumulating inventory thereby depressing levels. If about 16 million tonnes of finished steel stock was appalling equally baffling was 2 million per day of crude production in June.
Apart from that, steel inventory totaled 11.79 million tonnes in key steel mills for the first ten days of July, rising by 2.82 million tonnes YoY, an implication that earlier downside is attributed to stock shift from traders to mills.
CLPPI - Chinese Long Product Price Index
CFPPI - Chinese Flat Product Price Index
CHISPI - Chinese Steel Price Index
July has been beset with, persistent rain and high temperatures. Nose dive witnessed in July has led to prices of all major products tumbling below CNY 4000 per tonne at important locations, being the lowest in last 2 years.
Expectation is rife that H2 would be reprieve after a harrowing H1 with government sponsored infrastructure and housing plans coming to pass. Moreover the global economy and demand is expected to turnaround as inventory levels are low everywhere.
Source - Strategic Research Institute