20/05/14 – Mayhem gathers root in Chinese steel market

Steel price in China have been downhill in May loosing 1% in the Ist 3 weeks. Rebar market has been the mainstay of economic growth story in China and is good indicator of demand growth has slumped by 2%.

Infrastructure and construction is key demand driver for rebar and any vacillation in its price is an indication of economic health.

Steel industry has taken double hit from poor demand and overproduction crippling the market levels. Even though Chinese authorities have been going hammer on tong for capacity reduction under the garb of pollution control there has been minor dent in production figures.

Large steelmakers in China produced a record high 1.824 million tonnes of crude steel in the first 10 days of May. Excess annual production capacity of at least 200 million tonnes, has plagued China’s steel sector for years.

Chinese steel futures dropped to a record low on Friday as supply outpaced fragile demand in the world’s top market for the commodity where slower economic growth has hit consumption.

Prices of raw material iron ore were near their cheapest level since September 2012, also overwhelmed by brisk supply as Chinese steel mills offered some cargoes back into the market to boost cash flow.

Rebar for October delivery on the Shanghai Futures Exchange touched a low of 3,104 yuan (USD500) a tonne, the lowest for a most-active contract since the bourse launched rebar futures in March 2009.

Rebar, used to reinforce concrete in buildings, was down 1.5 percent at 3,105 yuan a tonne by midday. It has lost 2.1 percent for the week so far, on track for its third weekly fall.

Achieving growth target of 7.5% seems onerous unless some stimulus package supplemented with production cuts imposed soon.


Source – Strategic Research Institute, SteelGuru.com