Posted on 05 Mar 2009
Asia Steel-China prices down, S.Korea cuts plate prices
Chinese spot steel prices edged down, falling for a fourth consecutive week, and some small producers are reportedly preparing to reduce output again, hit by mounting inventory and weak demand. Prices of China's benchmark hot-rolled coil fell 1 percent to around 3,490 yuan ($510.1) a tonne this week, from 3,375/3,605 quoted last week, data from Metal Bulletin showed.
"Inventory continues to build up and prices have to come down as there's simply no business at all," said a trader. But the trader said the market might see a temporary rebound as China announced plans this week to increase spending in areas including infrastructure and manufacturing, on top of the 4 trillion yuan stimulus package unveiled in November.
Weak spot prices are forcing big mills to cut their offer prices, with Baosteel, China's biggest steel maker, cutting hot rolled coil prices by 5 percent from April. "Spot prices could face further pressure as the inventory cycle potentially enters a de-stocking phase in the sales channels," Goldman Sachs said analysts this week. Asian prices, which saw a mini-rally in December and January led by China, came under further pressure in recent weeks on increasing inflows of cheap steel products from eastern European countries.
"Russian and Ukrainian steelmakers are offering benchmark HRC products for export to Asian markets at prices as low as $350 a tonne free on board, versus the prevailing regional price of around $480," said Goldman Sachs. JP Morgan analysts also warned that China's steel imports from Russia and Ukraine could reach 2 million tonnes in coming months, or 10 percent of its monthly consumption of flat products, and import prices could fall further as the cash cost is well below currently quoted FOB prices.
Global steel products are increasingly heading to Asia as the region has a far better outlook than recession-hit Europe and the United States, where output dropped roughly 50 percent in January and slogans such as a "Buy America" raise protectionism fears. China, the world's top steel producer and consumer, may also take action to curb imports and encourage exports, traders and analysts said. "There is speculation that the (Chinese) government could raise HRC rebate taxes on exports by 5 percent. This would place further pressure on regional prices," CLSA analysts said.
China, which raised production for a second consecutive month in January from the previous month, is now considering cutting supply again, with media reports saying some small- and medium-sized mills in Heibei and Tangshan regions are idling their blast furnaces. In South Korea, Dongkuk Steel cut ship plate prices by 21 percent in its second price cut in two months, reflecting growing competition among suppliers to reduce stockpiles of ship plate, the sole bright spot in the battered steel sector. "We previously thought the plate market was likely to remain tight in 2009 but Dongkuk seems to be kowtowing to shipbuilders to win more volume by cutting plate pricing much faster than expected," Morgan Stanley analysts said. They expect the ship plate market to contract by 44 percent until 2012 on plunging new orders and competition among suppliers would intensify, pushing prices lower. ($1=6.842 Yuan)
