SteelOrbis Shanghai
Entering 2007,
China's steel market showed a strong dynamic upward trend. Before the Chinese Spring Festival (18-25 February), the local market price had continued to rise. The overall market seemed not to have been influenced by various negative factors. Due to the forecast for a surplus steel supply in 2007 and the rumors of an adjustment in the steel export policy, the situation of high prices and not very strong sales was widespread across the local markets. Undoubtedly, the recent market situation is a little above the market's expectations.
Although the steel prices went up across the board, this did not entirely signify a booming market. The prominent features of the current market may be summarized as follows:
Price hike does not signify market confidence
Local steelmakers contributed greatly to the price hikes seen in early 2007. Many large and medium steelmakers such as Anshan Steel, Wuhan Steel, Shougang,
Shagang, and Tanggang announced upward adjustments in their ex-factory prices for March. The price increase margin was on average in the range of RMB 100-400/mt. Although there are differences between the various products and the different mills, the overall trend is similar. It is noteworthy that this is the first time in recent years that steel price hikes have been seen in the month of January.
However, this price hike seems not to have been completely accepted by the market. According to indications from market players, the actual quantities of steel sales involved in completed deals are at a low level, with the market not very active for the moment. Many traders lack the necessary confidence to add their inventory and are even considering to drop their quotes a little in order to accelerate sales. The market is showing definite sensitivity as regards the potential impact of changes in export policy.
Steel export growth to slow down
In January 2007,
China exported 4.38 million tons of steel. Although this represents an increase of 142 percent compared to the same month of 2006, it also marks a decrease of 21 percent compared to December 2006. Meanwhile, steel imports continued to drop. Imports for January 2007 stood at just 1.48 million tons, with a yearly growth rate of -6.2 percent and also down 1.6 percent on December 2006. During the days following the Spring Festival (from February 25 on), the export situation showed continued stability without significant fluctuations. Any deals being carried through were just the result of previously-signed contracts.
Thus, the high price/not very brisk sales situation continues to pervade the local market. Most traders are cautious as regards the signing of new contracts, preferring to wait instead for the announcement of the state's new export policy.
Although currently the local market is going through a period of tension, the basic situation for
China's steel industry is still good.
Firstly, the rapid and healthy development of
China's economy will continue to create huge demand for steel. This huge and stable demand will provide sustained support for the health of the local market.
Secondly, local steelmakers have learnt more from the market and have begun to establish instant and positive reflex mechanisms in line with market changes. The most important of these mechanisms is that local major steelmakers have started to reduce output on purpose in certain periods, as in December 2006 for example, so as to stabilize the market price.
Lastly,
China's steel exports represent around 10 percent of total steel output and this ratio makes sense for
China. Although
China is facing antidumping investigations and questions over its alleged use of subsidies, world demand for Chinese steel cannot be replaced by any other country or region.