SteelOrbis Shanghai
The Chinese long products market saw an overall flat performance in the wake of the Spring Festival. Influenced by the raised ex-factory prices, market prices climbed up by a small margin; the inventory level rose considerably due to the sluggish commercial activities, but it is still lower than the post-festival period last year. Finally, export quotations continued on an upward trend.
By the end of
trading on March 2, the average price of 20 mm diameter HRB 335
rebar in the three major Chinese markets - Shanghai, Beijing and Guangzhou - was up RMB 23/mt ($3) to RMB 3,343/mt ($432), while that of 20 mm diameter HRB 400
rebar has risen RMB 14/mt ($2) to RMB 3,457/mt ($447). Meanwhile, the average price of 6.5 mm Q235 high speed
wire rod has increased RMB 17/mt ($2) to RMB 3,390/mt ($438).
Last week, many
construction sites still hadn't recommenced work, which meant that demand did not recover, thus contributing to the low
trading volume. According to some market players, during the coming week actual rising demand will gradually show its effects.
Last year, mills and traders were all very optimistic concerning the post-festival market. In contrast, this year traders seem much more cautious. Market confidence this year has been affected by the release of newly-added
production capacities, and also by the continuing rumors of an imminent export rebate adjustment. In spite of the fast growth of
China's economy and the rising demand for steel products, market inventory saw a certain reduction on the contrary, representing the traders' cautious attitude towards the future. In addition, many mills hiked their ex-factory prices over the past week, while market prices only increased slightly. This means that most market players are now just observing the market situation before the actual release of demand and are not willing to push up prices, thus stimulating the mills to further raise their ex-factory prices.
Based on the rising export prices and the tight supply, the mills are very confident in the future market. Thus, in spite of the unrecovered demand, they still made upward adjustments to their ex-factory prices throughout the past week. However, when the traders' margins are taken into account, the increase range is quite limited.
Currently, export quotations for Chinese long products are around $450-460/mt FOB. The latest quotation of
Shagang's
wire rod stands at $500/mt FOB and orders cannot be concluded before late-April and May.
Generally speaking, high economic growth and development is expected to continue in the world and in
China in 2007, resulting in brisk demand and good prospects for steel products.
The Chinese long products market will continue to rise with fluctuations in the short term. There are several factors which are expected to contribute to this price increase trend:
Firstly, the Indian government has announced an additional $7/mt tariff on
iron ore exports, causing the FOB price to increase by more than 10 percent. Influenced by this,
China's domestic ore prices jumped up sharply and, thereby, the
production costs of long products also increased.
Secondly, the strong international long products market provide a relative big overseas market for
China's long products exports. In addition to the traditional export destinations of
Southeast Asia and the US, exports to the
Middle East and
Africa have also been quite active recently.
Thirdly, in order to control the excessive rise in housing prices, the Chinese government has decided to increase land availability. As a result, the demand for long products is expected to shoot up in the future.
Fourthly, the present cautious market atmosphere also lays a sound foundation for future price rises.
However although lower than that of 2006, the post-festival market inventory is still at a relatively high level and the market needs some time to consume this inventory. During this process, negative developments such as the potential export rebate decrease etc. are likely to cause market declines. Nevertheless, all in all, the overall upward trend is not expected to change.