China’s domestic longs market picks up

Given the efficient consumption of long product inventories, China's domestic longs market started to pick up after its recent downward movement. Thus, led by the Beijing market, various regional markets in China registered certain increases over the past week.

The Chinese long products market moved on quite a stable trend during the first half of the past week before showing certain improvements in various regions - following the lead of the Beijing market - over the remaining days of the week. From a national perspective, the northern market performed stronger than the market in the south. In general, the domestic market has moved out of its declining track and has entered an ascending trend which is expected to last until July.

The continuous decrease in inventory levels is the main reason behind the market improvement. By the end of the past week, long product inventory in Beijing, which approached the level of 600,000 mt after the Chinese New Year, was down around 50 percent from the peak level to 300,000 mt. Meanwhile, inventories in Shanghai, Guangzhou, and other regions have all registered relatively sharp falls.

Moreover, three additional minor factors have also contributed to the climb in prices. Firstly, in the face of low market prices and also given the previous price slump, traders did not dare to buy in materials, and so their stocks remained low; at the same time traders became quite cautious as regards sales, which made end-side buyers feel the pressure when they sought to make purchases. Secondly, with the continuing fine weather, construction work has been progressing at normal levels, with stable demand thus coming from downstream users; in this context traders are no longer overwhelmed by pessimism. Thirdly, despite the latest price increase, long product prices in the domestic market are still at relatively low levels which remain acceptable to buyers, thus boosting market confidence.

Also supporting the above factors is the mass capital injection made by the Chinese government in infrastructure construction and in the real estate sector. According to the latest figures, in the first quarter China's fixed assets investment rose 28.8 percent to RMB 2.8129 trillion ($411.8 billion), while urban fixed assets investments in the same quarter were up 28.6 percent to RMB 2.3562 trillion ($345 billion). China's stimulus package worth RMB four trillion is having an impact and will continue to play an important role, providing plenty of upward momentum for long product prices. As a result, the Chinese long products market is expected to remain on a rising trend into the future.

Nevertheless, in the short run, due to the rapidity of its latest increase, the northern China market is likely to register a correction. Once this correction comes to an end, the market will soon enter a new phase of upward movement.