News Room - Steel Industry

Posted on 04 Jun 2010

China prices dip 2 pct on demand fears

China steel prices slumped this week in a torpid market, with traders still fretting about long-term demand after a number of medium-sized steel mills decided to make production cuts going into June.

 

Industry consultancy Mysteel said construction steel prices in Shanghai stood at 3,790-3,810 yuan ($555) per tonne on Thursday, down 2 percent from last week.

 

"Because traders aren't very confident about the market right now, they are relatively inactive, and the sales they do make are usually from their inventories," said a dealer based in Shanghai.

 

"We don't know how long this can go on, but we should expect iron ore prices to start recovering and stimulate steel prices," he said.

 

Rebar contracts for October delivery on the Shanghai Futures Exchange SRBc5 closed at 4,200 yuan per tonne on Thursday, down 1.66 percent from last week.

 

According to China Securities Journal, 19 steel enterprises in northern China are already planning significant production cuts this month, and rolling mills in the region are now running at less than 50 percent of total capacity.

 

The official reason is "maintenance", but analysts said the current state of the market made it unwise for mills to continue at full pelt.

 

"My view is that prices will not recover soon because the rising costs -- including coal and iron ore -- means that some small to medium-sized mills are cutting production," said Helen Lau, senior analyst with UOB Kay Hian in Hong Kong.

 

"The overall macro-economy in China is slowing down as we saw from the PMI a few days back," she said.

 

China's purchasing managers' index fell to 53.9 in May from 55.7 in April, according to data released by the China Federation of Logistics and Purchasing on Tuesday.

 

Despite a collapse in export markets, China's steel sector remained afloat last year as a result of a massive stimulus package focusing on infrastructure and cheap housing, but regulators are now turning their attention to the threat of overheating, especially in real estate.

 

Luo Bingsheng, the vice-chairman of the China Iron and Steel Association, told a conference on Saturday that fixed asset investment was likely to weaken over the remainder of the year, and steel output would not remain at April's record high.

 

"Crude steel output from January to April was way too high," he said.

 

Some steel producers remain optimistic, saying that underlying demand from China's urbanisation programme is likely to remain, even if the real estate bubble bursts.

 

While uncertainties about prices and demand in the second half could force a number of industry minnows to close, the overall outlook was still positive, said Henry Yu, chief executive of the U.S.-listed General Steel Holdings (GSI.N).

 

"China's macro-economic control measures against real estate are mainly aimed at commercial housing, but affordable housing will still be built, and so, we think infrastructure investment won't fall very much," Yu told Reuters.