Chinese HR and CR market began softening

SteelOrbis Shanghai Although having recorded RMB 50-100/mt ($6-12) increases compared to last week, the market prices of hot and cold rolled sheets and coils have begun decreasing in the last couple of days in China. Commercial activities were poor in major hot and cold rolled product markets in China last week. The rapid price increase in the end of May and early June makes it hard for the purchasers to accept the current price levels; therefore, the current situation is a kind of adjustment following to the sudden and sharp price increases in the earlier weeks due to continuous price hikes of steelmakers. The domestic supply of these products is still low at present, but due to poor commercial activities over the past week and arrival of new supplies from some steel mills, the market inventory temporarily stopped going down, and its level generally remained the same as the previous week. Meanwhile, the exports also saw tiny changes. Finished steel exports in May increased 65.4 percent over the same period of last year and 29.2 percent month on month. Therefore, an adjustment is expected on the export tax rebate policy. Meanwhile, the export quotations of domestic steel mills remain at a high level of $580-600/mt FOB, but the quantity of orders seems to have decreased obviously. Although the impact of China's export tax rebate policy on domestic prices depends on the changes in international market, under the current market conditions, the adjustment on the export tax rebate policy may probably lead to an increase in the domestic supply. The quantity shifting from exports market to domestic market may be decisive on the market price trend. After the considerable price rise, traders are sensitive to price changes. Due to relatively large profit range, once the commercial activities become less, traders may adjust their prices downwards. In the short term, the domestic supply and demand conditions and relatively high costs can still support the current prices. The sensitivity of traders on commercial activities after the massive price increase, and changes to the export policy are likely to result in slight price fluctuations in July.