One week into February after the lunar recess barely any activity is perceptible in the steel market in China. In prologue to the post holiday’s period there was pent up excitement about turn of events for good. Optimism was based on both surreal as well as real developments.
Whereas the government made its maiden liberating foray with 50 basis points reduction in CRR , the markets where sitting on low inventory as a fall out of abysmal buying and fastidious production pruning . After the US downgrading and the ever deepening economic morass in European theatre Chinese steel market could never resurrect from a back breaking slide.
Down but not yet out raw material prices always remained the elusive sword of Damocles keeping mills on the razors edge of eroding profitability. In fact despite omnipresent morose the iron ore prices never really came down below USD 140-145 per tonne CNF, China levels keeping up the ante on mills.
A week down after the holiday the verdict is clear that the spring is missing from the market. Antithesis of the dynamics becomes clear with the inventory levels in both long and flat products ballooning during the holidays. One of the perpetrators of nemesis was the hype built over a plausible spike after holidays. Mills carried out production at a uniform rate however low buying during the holidays augmented inventory in each category.
CLPPI - Chinese Long Product Price Index
CFPPI - Chinese Flat Product Price Index
CHISPI - Chinese Steel Price Index
These indices have base of 10,000 as on July 1st 2008
The mere fact that the collapse has been averted gives some solace to an already beleaguered and weary market. High inventory low buying is the most dreaded situation.
Gloom writ large in EU and declining levels in Black Sea and SE Asia an outlet for domestic volumes seems narrow thereby exerting pressure on domestic levels.
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