News Room - Steel Industry

Posted on 09 Apr 2009

China prices down on slow demand recovery

Chinese spot steel prices edged down after trading firm for the past two weeks, as sentiment remained fragile over demand recovery despite a strong pick-up in manufacturing activity and reports of auto sales.

 

Prices of China's benchmark hot-rolled coil were quoted at 3,330 yuan ($487.2) a tonne this week, down 0.7 percent from 3,245/3,415 quoted last week, data from Metal Bulletin showed.

 

"Trade is relatively thin as restocking at the distribution channel level is quite slow and demand recovery from end-users remains weak," said a Chinese steel trader.

 

China's official purchasing managers' index, a measure of activity in the manufacturing sector, rose to 52.4 in March, marking the first time the index has been in expansionary territory since September and suggesting its economy may have bottomed out.

 

Adding further evidence of economic recovery, China's vehicle sales, which slowed last year to its lowest annual rate in more than a decade, rose to a record high in March, helped by Beijing's policy initiatives to support the market.

 

But the real impact on steel consumption still appears marginal and inventory levels remain high after mills raised production steadily between January and February, pushing stocks to record highs above 10 million tonnes in a market already struggling with weak demand and tumbling exports.

 

"A strong pick-up in steel demand, particularly from manufacturers, will take time ... and domestic steelmakers will carry out another round of (supply) cutbacks unless they see a real pick-up in physical demand," said Helen Wang, a DBS Vickers analyst.

 

In response to weak prices and falling exports, China's daily crude steel output in March fell more than 4 percent from February, the official Shanghai Securities News reported on Thursday.

 

But China's iron ore imports rose again to a record high in March, suggesting steelmakers may be preparing for a recovery, although some of the imports were seen replacing domestically produced, high-cost iron ores.

 

Traders said China's recent decision not to raise export tax rebates on hot-rolled steel and construction steel also raised worries that domestic inventory may build up again and dent the price recovery.

 

They are now hoping Beijing would cut the steel export tax to halt tumbling exports, which used to account for more than 10 percent of domestic production.

 

But construction steel futures remained strong, with September rebar SRBU9 rising 0.9 percent this week to 3,479 yuan and wire rod SWRU9 also gaining 0.7 percent to 3,345 yuan, amid growing prospects of a demand recovery stemming from China's stimulus package.

 

In Japan, where steelmakers cut production to nearly four-decade lows, Kobe Steel downgraded its earnings estimates for the year ended March 31 to a net loss, citing an inventory writedown.

 

Japanese mills are under heavy pressure to make a deep steel price cut, as a stronger yen made their products less competitive in overseas markets against cheap Russian products.

 

"The drop in overseas prices will likely have a major impact on Japanese export prices," Nomura analyst Y. Matsumoto said in a note on Tuesday, cutting its export price decline forecast for the current fiscal year to 46 percent from a previous 30 percent drop. ($1=6.835 yuan)