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Week 29 blood bath in China numbs steel market into silence

Steel News - Published on Thu, 19 Jul 2012

The ferocity of decline has accelerated unabated over the last 3 days in week 29. Severity of the mauling is evident in 2% decline in long product prices. Flat product prices have been a shade slow but equally decrepit.

Consecutive battering of the steel prices is astonishing for its timing and magnitude when it was expected to bottom out before the autumn demand.

Class13-Jul18-JulChange%
CLPPI70376928-109-1.5%
CFPPI63766298-78-1.2%
CHISPI66626571-91-1.4%

CLPPI - Chinese Long Product Price Index
CFPPI - Chinese Flat Product Price Index
CHISPI - Chinese Steel Price Index

Please refer to our article: Gory run continues in Chinese steel market in July published on 17th July wherein we recapitulated current fundamentals crippling finished prices.
At the risk of repetition it would be appropriate to take a mid-stock. Steel market continues bottom fishing whilst bearish factors are not tending to ease.

Global macro-economic indicators still scooting headwinds continue unabated. Despite a rationalistic approach in EU and conciliatory wisdom in US by Federal Bank core issues remain unaddressed.

IMF has reduced the global growth forecast for 2012 to 3.5% from 3.6%. For 2013, the growth forecast has been lowered to 3.9%, from 4.1%, indicating that there are harder times ahead for economies.

Downside risks to this weaker global outlook continue to loom large. Immediate risk is delayed or insufficient policy action will further escalate the euro area crisis compounding economic woes in China.

As far as the emerging and developing economies are concerned, the growth projection for 2012 has been estimated at 5.6%, 0.1% below the earlier forecast made three months ago.

Global gloom notwithstanding the restrictive policy of Chinese government has done no good in reviving demand. A mere 7.6% GDP growth in May lowest in the last decade has set the clock back for the industry. With gloomy projection of 8% GDP growth in 2012 there doesn’t seem any let up in the sentiments.

Un-organized and fragmented Chinese steel sector has never bothered to face the oversupply monster squarely by opting for rationalistic production pruning. Daily crude steel production has been a tad over 2 million tonnes per day in the beginning July despite the shrill of mounting social inventory seems as suicidal mission by the mills.

Inventory levels have touched nearly 16 million tonne in July compelling some the major mills to reduce August prices. Market confidence was hammered by another heavy blow from steel mills price slash. Panic buttons were pressed with Baosteel, Shagang and HBIS’s cutting prices for August booking.

Slowing national economic growth pulls back the growing of real estate, auto and railway sectors. Property investment eyed a y o y growth rate of 16.6% in the first six months this year, with the growth rate shrank 1.9% point from the first five months. The fixed assets investment volume of railways dipped 36.1% y-o-y in H1. Central government reasserts that the controlling of house prices will definitely continue. In addition, many regions usher in rain seasons, affecting steel demand seriously. In this view, the conflict between steel supply and demand trends aggravated.

In the backdrop of disappointments it would be whimsical to prophesize an turnaround in the short term. The only respite mills can look for is cost cut with if iron ore prices corrects in the same ratio as the finished prices. However near dormancy in iron ore prices over the last fortnight despite mills postponing purchase is worrisome. Coking coal prices though have been sulking with China shifting sourcing to Mongolia and USA over dearer Australian material.

Source - SRI

(www.steelguru.com)
Posted By : admin on Thu, 19 Jul 2012
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