September 08, 2008

Phenomenon of rebar prices exceeding HRC prices

It is reported that last week, domestic construction steel price started to skyrocket in Chinese domestic market and it probably has entered another round of increase. Among others, East China market sees more substantial rises, with HRB335 20mm rebar jumping by CNY 160 per tonnes and CNY 60 per tonne CNY 100 per tonne to CNY 4220 per tonnes and CNY 4320 per tonne in Shanghai and Hangzhou respectively. Driven by the momentum in East China, rebar market price in Guangzhou has returned to CNY 4470 per tonne and that in Beijing arrive at CNY 4070 per tonne.

In East China, rebar price is calculated on the basis of theoretical weight. If based on practical weight, it is highest in China and actually has surpassed the price of HRC which is quite meaningful.

Firstly, many parts of the China are in low season for rebar consumption and there would be suspension of demand in some area of North China with temperature going down further in winter. Nevertheless, domestic construction steel prices continue to surge even under such circumstances. While HRC prices, though also on the rise, is inferior in growth rate and extent. As a matter of fact, construction steel price in East China have surpassed that of HRC for several times in 2007, which reflects the great change of their positions.

Secondly, the so called concept of high value added and low value added products is under the threat of breaking. To Chinese people, rebar is standard low end steel products, while HRC is regarded as higher in value. HRC is evidently much higher than rebar in terms of rolling cost. But the profit ability of HRC is lower than that of rebar in current market situation. Thus the traditional concept would probably alter soon.

Besides rebar, it is also the case with HR strip and HR wide coil. For some time, price for HR strip is equal with or higher than that of HRC. Such phenomenon indicates that "high value added" and "low value added" is a dynamic concept rather than a destiny. So we have to bear scientific attitude for different steel products.

According to Chinese government's view, China is still in the basic phase of socialization and it is also in the middle period of industrialization. There is a long way to go for infrastructure construction and urbanization. Hence real estate industry would continue to prosper and the demand for construction steels is set to keep robust.

Due to the fact that most investment went to flats production and a lot of construction obsolete steel facilities were dismantled, there has been great difference between their capacities, that is to say decrease in construction steel and improvement in flats. The rising flat steel capacity is leading to reliance on exports for alleviating domestic sale pressure. While the domestic HRC price is largely dependent on the international market performance. However most Chinese construction steels go to domestic market.

Since there is few newly invested construction steel capacity, the HRC output would be much higher for a long period. But the massive infrastructure construction requires more and more rebars and wire rods. In this regard construction steel price is anticipated to keep going up and would sometimes excel that of HRC.

(Sourced from MySteel.net)