Shanghai Leguang Trading: Output restrictions this and next quarter will push up steel prices

Tuesday, 09 November 2021 15:43:40 (GMT+3)   |   Shanghai

SteelOrbis discussed the recent hot topics of steel production cuts in China, price dynamics, and possible changes in trade flows with Ms. Ruan Miaoyun, manager at Shanghai Leguang Trading Co., Ltd.

In your view, when will the power shortage crisis in China be resolved?

The power supply limitations in China may continue in most regions or will occur with frequency, as they will not be resolved so easily just by adjusting prices. The power supply limitations will partly affect steel prices, while the more important thing is the continuous rises in raw material prices. Moreover, the power supply reductions could be regarded as responding to the international financial situation as the Chinese manufacturing industry has been continuously consuming the monetary loosening policy of Western countries. At the same time, the power supply limitations will force high energy-consuming enterprises to upgrade their product structure or improve efficiency.

What impact do you expect from the winter crude steel output curbs this year?

Production restrictions will result in crude steel output reductions in the fourth quarter this year and the first quarter next year, which will push up steel prices accordingly. However, traders may implement low inventory strategies to avoid the potential risks of big price fluctuations.

How do you foresee the dynamics for China’s semis imports in Q4 and Q1 next year?

Imports of semi-finished steel are necessary at the current stage, and so I think prices may edge up in the fourth quarter of the current year and in the first quarter of the coming year.

Do you think China will resort to importing rebar?

Actually the overall capacity of rebar in China is excessive, though the power supply restrictions have resulted in market players’ interest in importing rebar. I think China might mostly import from ASEAN countries or India.

How do you view the outlook for steel consumption in China in H1 2022, taking into account the case of Evergrande? Do you think the Chinese construction market could be hit by a longer-term recession?

As the leading company in the real estate market, the Evergrande case may exert a negative impact on the overall industry, which will reduce demand for steel as it is a key steel-consuming industry. However, China’s central government has taken measures to curb the rapid rises in the real estate market, which have taken effect and will prevent potential risks in the overall market. I don’t think the real estate market will face a long-term recession at the current stage. Demand for steel will also come from other industries, for example, vehicles and home appliances, etc.

What is your view of the coking coal and iron ore price trends? Is the current gap between them the highest possible or not?

Import iron ore prices and coking coal prices, in my view, depend on the mutual relationship between countries and on control of speculation in futures. As you see, China’s central government has taken measures to curb the speculation on commodity prices. Moreover, construction and infrastructure activities will slow down in the fourth quarter this year and the first quarter next year, and so coking coal prices and iron ore prices may soften during these periods.

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