Chinese long products market sees increased inventory

SteelOrbis Shanghai Over the past week, China's long products prices kept going up, while an overall flat trading performance was seen in the market. Southern China saw a decline after the continuous rise of previous weeks. Affected by the traders' stocking activity, market inventory jumped up considerably, especially for wire rod. Nevertheless, the mills' ex-factory prices and export quotations were still on an upward trend. On January 19, the average price of 20 mm diameter HRB 335 rebar in the three major Chinese markets - Shanghai, Beijing and Guangzhou - was up RMB 16/mt ($2) to RMB 3,263/mt ($420), while that of 20mm diameter HRB 400 rebar was up RMB 17/mt ($2) to RMB 3,390/mt ($436). Meanwhile, the average price of 6.5mm Q235 high speed wire rod was up RMB 20/mt ($2) to RMB 3,310/mt ($426). Throughout the past week, the Chinese long products market finally saw a change in the “strong southern and weak northern” situation which had dominated since Q4 2006. With the continuous increase in northern and eastern China, the market in the south experienced a decline. The average domestic market price moved down after having rushed to a peak. Nevertheless, a slight rise was observed compared with the end of last week. Insufficient supplies and rising ex-factory prices still continued to drive up the market prices over the past week. Last week, 31 mills hiked ex-factory prices for a combined total of 40 times. Meanwhile, the increased export quotations for longs were accepted by overseas customers. At present, the FOB quotation of wire rod is at $410-420/mt, up $20/mt or so month on month. With the improvements in transportation, the southern China market saw an increase in supplies coming from the northern regions, resulting in the fast decline in prices. However, the local market players pointed out that despite the increase in inventory last week, the overall market still saw low inventory levels. Therefore, prices are not likely to go down sharply, but will most likely show stable movement with slight fluctuations. At the same time, the northern market was characterized by strong movement with brisk commercial activity, which boosted up the confidence of traders. As regards eastern China, influenced by Shagang's increased ex-factory prices, price levels climbed up steadily with a normal trading volume being seen. The present increase in market inventory merely represents a recovery of inventory from low to normal levels. This does not create any pressure on the market. Moreover, it also drives traders to push up prices. This is because when supplies are low, price increases tend to create profits for the mills. However, when the traders have some inventory in hand, they can make some profits for themselves from the increase in prices. All in all, the current long products market is in a good state. Although demand may decrease before the Spring Festival (Chinese New Year), the market is still expected to continue its upward trend due to the prevailing general optimism.