Chinese long product prices currently bottomed out

Monday, 10 July 2006 15:00:01 (GMT+3)   |  
       

SteelOrbis Shanghai Chinese long product prices continued to go down considerably through last week. Although the downward trend stopped in the end of the week, the trading volume still remained at a low level with the continuous inventory increase of steel mills and markets. Domestic wire rod prices have decreased around RMB 150-210/mt ($19-26) week on week, while 6.5 mm high speed wire rod price declined around RMB 180/mt ($23) in China. The high temperature and continuous rain still drives the demand sluggish in eastern China, which affects the markets in all regions. Meanwhile, many traders believe that HRB335 rebar prices may fall below RMB 2,800/mt ($350) in the future, which strengthened the momentum of the price decline. Because the five major steel mills in northern China kept their prices at a relatively high level, traders preferred purchasing products from medium and small sized steel mills to sell in the Beijing market, which caused market inventory to increase and the sales of five major steel mills to drop. The high inventory against anemic demand led traders to continuously reduce their prices in order to promote the sales and stop new supply, causing to the sharp price decrease in Beijing. Influenced by the rapid price drop in northern and eastern China, the traders in Guangzhou market are also inactive in purchasing materials. Therefore, the market inventory in southern China has not increased evidently. However, because of the rapid growth in inventory of the leading local steel mills like Shaoguan Steel and Guangzhou Steel, such mills had to sharply cut their ex-factory prices last week, directly affecting the market prices. In the last two weeks the cumulative decline in long steel prices reached RMB 300-600/mt ($38-75). The market inventory costs are obviously higher than the current selling prices; therefore, the traders are suffering from great losses. The ex-factory prices of steel mill are also close to or even lower than the cost level, especially for those rolling mills whose semis costs in stock are already higher than the long products prices. Since some steel mills have arranged to stop the production for overhauling, the supply volume is expected to decline in the future. Influenced by this expectation, downward trend stopped in some markets in the end of last week. Some traders in Shanghai and Guangzhou markets even hiked their prices, which indicate that they regressed to the breakeven point and even beneath it. Chinese long steel prices are expected to see slight fluctuations next week. On the other hand, the market players are still pessimistic about the macro-control. These measures will come into force in July and August. The control in capital and land will greatly curb the demand for steel. However, it would not be easy to reduce the supply growth as great as the demand; therefore, market pressure can not wane with the increasing inventory. The prices are expected to continue going down when the products with high inventory cost are completely consumed. With respect to the international market, the rapid decrease in Chinese long product prices has already caused Chinese wire rod prices to decline in the US market; meanwhile, the export quotation of Taiwan rebar has also gone down. To sum up, under the pressure of the shrinking domestic demand and high supply volume, Chinese long product prices will be restrained for a relatively long period, but the rise of all kinds of costs will still support the long products prices. Chinese long product prices are expected to continue fluctuating within RMB 100-200/mt ($13-25) range at the currently low level for a longer time.

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