In recent months - and particularly in December - China's CR market has shown an uptrend characterized by a remarkable price hike. The average price level of CR products in many of China's major markets, such as Shanghai and Tianjin, have reached their peak point of 2007 coming up to the end of the year.
On the whole, besides the continuous cost increases and the widespread anticipation of further cost rises in the near future, the most important factor stimulating the CR market's upward movement is the supply-demand imbalance in the market.
The major steel-consuming industries in China have experienced a boom in 2007. The rapid development of these industries provides strong backing and support for the output and sales of steel products. The industries in question include automobile, machines, shipbuilding, construction, railway, household appliances and containers, accounting for almost four fifths of steel consumption in China this year.
Regarding CR consumption, the most prominent consuming industries are automobile, machines and household appliances. Production and sales of automobiles were both close to eight million units in the first 11 months of the year, up approximately 22 percent year on year. This level of performance has ensured a strong trend in the domestic CR market.
Meanwhile, China's monthly crude steel output figures indicated a downward trend from January to November this year - widely attributed to the state's steel industry policies regarding the elimination of dated capacities and the increased emphasis on switching from low to high valued added production. So far, only about 30-35 percent of China's plans for eliminating dated capacities have been realized. According to the latest government indications, a new financial policy is being drawn up which aims at encouraging all levels of local government to accelerate dated capacity elimination.
In December, due to overhauling works and the approach of the traditional Spring Festival in February, many steelmakers made plans to reduce their output. In addition, consumable CR inventory is also currently at a low level. In mid-December, the inventory in China's major cities was just around 800,000-850,000 mt, down nearly 400,000 mt compared to the peak figure in 2007.
Furthermore, it is reasonable to predict that overall production capacity will be reduced further in the near future. Almost all big new steel projects have been rejected by the state since late 2006. Outstanding examples are Baosteel's Zhanjiang project and Wuhan Steel's Fangcheng project, which still have not received final approval from the State Council, meaning that it's hard to see big new steel mills being constructed in China in the period ahead.