Price gap expands further between different local markets

SteelOrbis Shanghai Due to current transportation difficulties, performances in the southern and northern markets differed greatly over the past week; a big decrease was observed in northern China while a slight rebound was seen in the eastern and southern markets. By the end of trading on December 8, the average price of 20 mm diameter HRB 335 rebar in the three major Chinese markets - Shanghai, Beijing and Guangzhou - was down RMB 13/mt ($2/mt) to RMB 3,087/mt ($395/mt), while that of 20 mm diameter HRB 400 rebar was down RMB 30/mt ($4) to RMB 3,270/mt ($418/mt). Meanwhile, the average price of 6.5 mm Q235 high speed wire rod was down RMB 13/mt ($2/mt) to RMB 3,167/mt ($405/mt). Due to the current high demands being made on transportation, it is hard to send steel products from the northern region to the eastern and southern regions. As a result, the rising steel inventory at the northern and northeastern ports increased market pressure and resulted in a sluggish trading performance accompanied by a feeling of panic in the market. Rebar prices saw a sharp drop in the northern Chinese market throughout last week, while confusion was seen as regards market prices. In eastern and southern China, the market inventory of rebar declined gradually, and so a slight rebound was seen in prices. Also, wire rod saw a steady performance in terms of both inventory and price. According to some market players, in addition to the transportation problem, the pessimistic attitude of traders about the future is also one of the reasons behind the decrease in inventory. The Chinese long products market has been characterized by a “strong southern and soft northern” trend for almost a month now. However, the market looks stable on the whole with just slight price fluctuations. Various local steel mills have adjusted their ex-factory prices based on the regional market situation, and have not suffered much pressure due to the support of exports. However, certain changes have taken place over the past week. The northern steel mills had to increase supply to the bearish local markets, leading to the big decrease in market prices. Once exports are curbed, the steel mills will have to lower their ex-factory prices, thus creating a significant profit range for southern traders. In this case, low-price supplies will be able to enter the southern market, driving down the overall national market. On the other hand, since the Chinese government will very likely reduce further or even cancel the export refund rate, steel mills will continue to expand their exports in order to avoid losses, thus relieving the domestic market pressure. Therefore, we will still have to wait another while before we see a market decrease.