The China Iron and Steel Association (CISA) has said in a new report that in the remainder of the second quarter of 2010 domestic steel demand will continue to maintain its strength against the background of the rapid development of China's economy. However, according to the CISA, affected by the government's tighter monetary supply policy, by the rapid release of steel production capacities and measures taken to restrict inflation, in the coming period domestic steel prices will in general trend sideways with minor fluctuations, instead of surging upward at a fast pace.
The CISA pointed out that aggregate steel inventory in China's main cities stood at 15.43 million mt at the end of April, down 1.86 million mt or 10.8 percent from the previous month. April is the second consecutive month in which a month-on-month decrease in steel inventory was registered. The sales-output ratio also remained above 98 percent for Chinese steel companies in April. Meanwhile, the imbalance between supply and demand of steel in China diminished in the month in question.
According to the CISA report, the continuous increases in raw material prices have driven up production costs for steel companies since the beginning of the current year. In addition, the mills have to pay more due to the government's energy-saving and emissions reduction scheme. Although higher operation costs tend to reduce producers' profits, they have also provided support for the uptrend of steel prices.
The CISA report claims that no substantial changes have occurred in the economic fundamentals and the supply-demand dynamics of the steel markets, stating that panic reactions in the market should be avoided and any large decreases in steel prices should be resisted. The CISA went on to recommend that steel enterprises should pay careful attention to the changes in the markets and should set production schedules according to their orders books.