News Room - Steel Industry

Posted on 27 Aug 2009

Asia Steel-China prices fall 5 pct as output hits new record

Chinese spot steel prices fell 4.9 percent in their second consecutive weekly fall on mounting concerns that robust output growth and tightening liquidity may further boost inventory build-up already on the rise.

 

After a months-long rally to a 10-month high early this month, China's steel prices turned lower: Prices of benchmark hot-rolled coil fell to around 3,792.5 yuan ($555.1) a tonne this week from 3,987.5 yuan last week quoted in south and east China, data from Metal Bulletin showed.

 

"Traders have started offering lower prices but there are few takers as many expect prices would slide further," said a Chinese steel trader in Seoul.

 

Traders' restocking has been subdued on expectations that major mills may now be forced to cut prices to get rid of extra surplus built up as a result of robust production growth running well ahead of demand expansion.

 

"Chinese steel prices appear to have entered a correction ... and major Chinese steelmakers are likely to cut prices for October shipments, due to be announced in early September," Nomura Securities analyst Y. Matsumoto said in a note this week.

 

China's crude steel output is set to hit a new record this month, as data from the China Iron and Steel Association showed on Thursday that daily output was running at an all-time peak of 1.67 million tonnes in the first 10 days of the month.

 

If the same rate continues throughout August, the full month could show steel output of 52 million tonnes, up 22 percent from a year ago and 2 percent higher from July when output hit a record 50.7 million tonnes, raising concerns of further price retreat.

 

"August's crude steel output will surely hit a record, but the production rate could retreat a little in middle and late August because of slipping steel prices," said Macquarie Bank analyst Henry Liu.

 

Concerned that its $585 billion stimulus plan and a burst in new lending could lead to wasteful investment and a new crop of bad loans, China reiterated on Wednesday it would take steps to curb overcapacity and redundant investment in industries ranging from steel to wind power equipment.

 

"This is not new policy but ... we expect the government to reinforce the policies more rigorously this time ... and the industry authorities to issue detailed policies in September," said Deutsche Bank analyst Julian Zhu said.

 

The construction steel futures market, which saw increased volatility this month on rising speculative trade, has also regained some stability, as some investors pointed out demand for such products would remain strong on the government's stimulus plan.

 

September rebar futures for September delivery SRBU9 in Shanghai Futures Exchange rose 3.2 percent from a week ago to 4,385 yuan and November futures SRBX9 also gained 3.4 percent to 4,271.

 

"We expect the (steel price) correction in China to be short-lived, given that final demand for construction steel remains robust thanks to the government's economic stimulus, and, as shown by the strength in auto sales, demand for steel from the manufacturing sector is strong," Nomura's Matsumoto said. ($1=6.831 yuan)