SteelOrbis Shanghai
In line with the pre-New Year trend, China's flat rolled market continued to soar dramatically after the holiday, while a rising trading volume and low inventory levels were also observed.
On January 8, the average price quotation of 5.75 mm x 1,500 mm x C SS400 hot rolled coil in Tianjin, Shanghai and Lecong was up RMB 124/mt ($16/mt) week on week to RMB 3,997/mt ($512/mt), while that of 2.75 mm x 1250 mm x C Q235B hot rolled coil was up RMB 100/mt ($13/mt) to RMB 4,167/mt ($534/mt).
Meanwhile, the average price of 1.0 mm x 1,250 mm x 2,500 mm ST12 cold rolled sheet rose RMB 83/mt ($11/mt) to RMB 4,993/mt ($639/mt), while that of 1.0 mm x 1,250 mm x C ST12 increased RMB 113/mt ($14/mt) to RMB 4,973/mt ($637/mt).
After the New Year holiday, the domestic market saw lively commercial activity, which greatly contributed to boosting up general confidence. Also, due to the brisk demand and abundant exports, market inventory continued to remain at a low level.
Remarkably, despite the continuous increase in market prices, the leading mills reduced their ex-factory prices for January and February, compared with those for December. For instance, Benxi Steel sharply lowered its ex-factory prices for January.
Shagang, on the other hand, issued ex-factory prices which were unchanged from December levels.
According to some market insiders, the newly-released ex-factory prices mean that the mills are not optimistic about the outlook for the market in the future. However, the reduced ex-factory prices are also a measure to offset the losses which distributors incurred after November.
In such a bullish market, the following three factors need to be noted:
Firstly, the rising domestic prices made it difficult to export. According to the information received, since flat rolled prices are now on a downward trend in the international market – thus narrowing the price gap between
China and other countries - exports are not as attractive to traders as before. Additionally, both importers and exporters are cautious about the upcoming export tax rebate adjustment. As a result, most mills and distributors are reluctant to issue export quotations. Even if the odd mill have given out quotations, these have in any case been too high for foreign customers to accept. If this situation is prolonged, future exports will be affected greatly.
Secondly, the price increase before the New Year holiday was caused mainly by the demand of end-users. However, after the holiday, the traders began to make a lot of purchases due to the optimistic market atmosphere, and this directly caused the market to climb rapidly. Once the market atmosphere changes, prices can be expected to drop sharply.
Thirdly, steel
consumption is traditionally low in the first quarter, and so demand in the period ahead can be expected to weaken. At the same time,
production is not likely to slow down and this will contribute to the market pressure of supply exceeding demand in the short run.
All in all, the upward momentum is expected to continue in
China's flat rolled market in the days ahead, though perhaps with some fluctuations - provided of course that inventory does not see an obvious increase.