Chinese longs market boosted by mills’ price hikes

In a context of normal levels of trading and almost unchanged market inventories, China's long products market received its main boost over the past week from the price hikes made by local mills.

Last week 15 mills in China raised their ex-factory longs prices a combined total of 17 times by margins ranging from RMB 20/mt ($3/mt) to RMB 130/mt ($19/mt). In particular, Hebei Steel Group, which usually implements the same prices for the duration of the whole month, announced a sudden upward adjustment of RMB 50/mt ($7/mt) to its long product prices on June 16. In addition, Jiangsu Province-based steelmaker Shagang hiked its prices strongly on June 21, with rebar prices rising by RMB 130/mt ($19/mt) and wire rod prices up by RMB 180/mt ($26/mt).

Against the background of brisk demand, traders have recently seemed increasingly active in making purchases from mills, leading to a considerable drop in mills' inventories, thereby strengthening the confidence and determination of the mills in further hiking their ex-factory prices.

Looking at the various regional markets, although market prices have registered relatively big increases under the influence of the mills' price hikes, trading activities have failed to follow up, remaining at unchanged levels.

Stimulated by the market's rising trend, the Chinese mills have been producing at full capacity, with rebar production for May hitting a new historical high. According to the latest figures, China's rebar production in May totaled 10.0227 million mt, up 1.5152 million mt or 17.8 percent year on year. Average daily rebar production during the month reached 323,300 mt, up by 400 mt or 0.13 percent month on month. Meanwhile, rebar production for the January-May period amounted to 46.705 million mt, up 7.6581 million mt or 19.6 percent year on year. Meanwhile, China's wire rod production in May totaled 8.0539 million mt, up 662,800 mt or nine percent year on year. Average daily wire rod production during the month reached 259,800 mt, up by 10,400 mt or 4.17 percent month on month. Meanwhile, wire rod production for the January-May period reached 36.1722 million mt, up 2.8043 million mt or 8.4 percent year on year.

Despite the significiant rise in production, market inventories have remained at normal levels, indicating the effectiveness of China's economic stimulus package. In addition, as a result of the recovery in the real estate sector, the real estate sales volume in China has soared dramatically: this is expected to be a major source of impetus helping to drive up steel prices in the domestic market in the future.

Last week, China's domestic pig iron market maintained a positive trend on the whole; meanwhile, import quotations of scrap continued to climb up, followed by the prices of domestic scrap; finally, billet prices registered a remarkable rise at the same time.

As regards the future, with increased arrivals expected for the July market, the upcoming rainy season in the south will surely affect the market demand for long products.

Overall, China's domestic long products market is likely to continue its upward trend in the coming week following the continuous price hikes made by the mills. However, since market prices have already reached relatively high levels, the market is expected to face greater pressure in the future.