Analysis of key factors which markedly influence current Chinese steel market

Here are some key factors which have big influence on current Chinese steel market. These factors might be helpful in forecasting the market trend in near future. Domestic demand Local demand, as basic key factor which determines the price trend, is influenced by China's macro economic situation. Important industry indexes of recent months show that China's economy is still developing steadily. Increase rate of Value Added of Industry from February to May are 20.1 percent, 17.8 percent, 16.6 percent and 17.9 percent over the same period of last year respectively. And growth rate of Investment in Fixed Assets in Jan-Apr., Jan-Mar., Jan-Feb. is 26.6 percent, 29.8 percent and 29.6 percent over the same period of the previous year respectively. Ratio of Sales of Industrial Products from February to May is 97.31 percent, 97.33 percent, 98.04 percent, and 97.75 percent, respectively. The social investment and industrial production keep operating on a high level. With low inventory level, the sales situation of industry products is optimistic. Demand for steel is always in accordance with the economic development situation; therefore, the steel market in China will keep relatively steady. Steel export From January to May, Chinese steel output continued to increase and reached peak in May with daily average output 1.29 million ton, an increase by 21,000 tons from April. Accompanied by the output increase, the steel export also kept increasing. The monthly ratio of export to domestic output changed from 5.6 percent (Jan.) to 8.7 percent (May). Currently, huge abroad demand and higher world steel price, not only attract Chinese steel makers and traders to export more steel products, but also cause local steel prices to go up higher levels. But the present export situation probably will not last for a long time. Steel importing countries are more and more worried about the impacts of imported steel. And the price difference between local and overseas markets is tending to disappear, especially after the Chinese government officials said recently that the tax rebate of steel export would drop by 5-6 percent. This shows government's strong will again that steel export is not encouraged! Productive cost As a representative of Chinese steel makers, Baosteel accepted 19 percent price hike of iron ore on June 21. This means cost of iron will rise up by RMB 40-80 per ton. With background of high price level of oil, coal, coke and non-ferrous metals, price increase of steel is inevitable. In fact, the price increase has happened and prices kept increasing for months. Most of them can be explained by price increase in advance, because the market has foreseen this result. From this angle, the pressure of cost increase has been digested well by the steel market and price hike of iron ore will impossibly bring big impact on local market. After all, 0%-40% price hike of iron ore has been thought possible before. After analysis of the above key factors, it's reasonable to think that the Chinese steel market will keep on a relatively high price level steadily in near future.