Construction steel analysis – Chinese market

Construction steel analysis – Chinese market

Large quantities of low price products arriving last week in the Beijing and Shanghai markets threw the supply and demand relation out of whack, bringing further price cuts in local markets. A price increase initiated in early September by Beijing traders was followed by similar moves from their counterparts in Shanghai and Guangzhou. However, the price increases were met with a distinct lack of concluded transactions. Furthermore, the price increases enticed steelmakers in neighboring areas to send their products to these central markets, which in turn caused inventories to pile up. Traders then began to reduce their prices in hope of dissuading steelmakers from continuing to send their products to the inundated markets. However, the typhoon constrained the movement of products and led to a larger range of decline in the prices. The fact that steel makers were able to lower their ex-factory prices due to decreasing raw material costs also played a role in the recent price declines. Domestic billet, coke and coal prices are on the downturn. Iron ore prices are weak as well. Furthermore, the country’s tight power supply situation has been alleviated as the peak summer season has passed. In light of the reduced production costs, medium and small-scale steelmakers were keen to send their products to the main markets, where they hoped to fetch a premium. Generally speaking, the domestic market trend is not optimistic in short run. Last week’s rapid decline in prices failed to boost transactions. The market will continue to present a downward trend. An optimistic view should not be held when steelmakers have yet to take adequate steps to adjust their production capacity according to market demand. SteelOrbis Shanghai