Many stainless traders pin their hope on the second half market after it gone through a continuous downtrend in the first half. However, Mysteel analyst suggests that the downturn would continue in the remainder of 2008.
First, US economy is unlikely to shake off the mire in the second half, this together with the spiking raw material prices, the financial crisis in Vietnam and the prevailing inflations in emerging economies would combine to drag down the stainless market. China also faces the challenge despite some saying that domestic economy would revive in later half.
Second, market supply would increase. Stainless makers have experienced output cutback and price decline in the first half due to slack demand. As a result, the restrained output will be released in the later half.
Taigang Stainless disclosed in its first half earnings report that its real production in the period accounts for 1.99 million tonnes, only representing 40.07% of the whole year target of 4.99 million tonnes. To fulfill the annualized plan, the stainless maker will have to ramp up production in the coming months, which is set to increase the supply pressure.
Other steel mills like Baosteel also face the same difficult condition. This together with the new capacity utilization, like the commissioning of Taishan Steel in the second half, would expand market supply and lead to surplus alongside the sluggish demand.
Third, traders are suffering severe cash flow pressure at the moment. The more than one year's languid stainless market since last Jun has exerted great pressure on traders' capital circulation. And some traders even hold last year's resource. Therefore, they have to pay huge monthly interest for the hoarding.
Wuxi market has seen continuous price decline for 300 series products last month, and price for 304 HR principle products even dived 600-1,000 yuan per tonne for once.
Hence, traders have to promote sales to withdraw cash, which further accelerate the price decline. Currently, traders are generally pessimistic towards future market, and are very cautious in taking in new resources. A host of them only hold prime customers.
