Chinese longs market fluctuates on a downward trend

Over the past week China's domestic long products market has continued to go down, by a margin of RMB 20-50/mt ($3-7/mt) week on week. As the Spring Festival (February 14-21) approaches, some traders suffering from a lack of capital have had to lower their prices to stimulate sales; meanwhile, other traders have reduced their prices in order to limit the risk entailed by high inventory levels. Generally speaking, in spite of the overall bearish demand, the market has not slumped sharply due to the relatively high ex-factory prices.

By the end of trading on January 29, market prices of 6.5 mm Q235 high speed wire rod were at RMB 3,900/mt ($572/mt), RMB 3,720/mt ($545/mt) and RMB 3,900/mt ($572/mt) in Shanghai, Beijing and Guangzhou respectively; meanwhile, 20 mm HRB 335 rebar prices stood at RMB 3,630/mt ($532/mt), RMB 3,710/mt ($544/mt) and RMB 3,860/mt ($566/mt) in the above respective areas, with 20 mm HRB 400 offered at RMB 3,770/mt ($553/mt), RMB 3,820/mt ($560/mt) and RMB 4,140/mt ($607/mt) respectively.

The shrinkage in market demand has been the main factor behind the recent fall in long steel prices in China. As the construction steel market has entered the slack season, heavy snowfalls and freezing weather have been seen in many regions of the country, making it hard to carry out construction work. Meanwhile, it is time for millions of farmer workers to return to their home regions for the Spring Festival holidays, and so many construction sites have halted their work, leading to a reduction in demand for rebar. Moreover, the considerable drop in the stock market has greatly hit the steel futures market, which registered an obvious decrease during the middle of the past week. In addition, there is increasing concern in the market on the issue of interest rates, with some even predicting a further hike in the deposit reserve ratio in the post-holiday period.

On the mills' side, Hebei Steel Group released its latest price list in the past week, raising its February prices for wire rod and coiled rebar by RMB 60/mt, keeping general rebar prices unchanged from January levels, with its settlement prices remaining constant for January. Since the current market levels are generally lower than mills' ex-factory prices, many players are now adopting a wait-and-see approach, looking forward to Shagang's price list for early February.

As regards market inventory, on January 29 rebar inventory in Shanghai reached 546,000 mt, up 6,000 mt week on week; meanwhile, wire rod inventory in Shanghai stood at 91,000 mt, down 2,000 mt week on week. In addition, rebar inventory in Guangzhou climbed up by 35,000 mt week on week to 485,000 mt, with wire rod inventory in Guangzhou up by 18,000 mt to 213,000 mt. Rebar inventory in Beijing amounted to 437,000 mt, up 21,000 mt week on week, while wire rod inventory in Beijing saw a rise of 3,000 mt week on week to 49,000 mt.

On the raw materials side, the domestic pig iron market has maintained a weak stability over the past week, accompanied by sluggish trading activity. Meanwhile, the scrap market has stepped down on a fluctuating trend, and domestic billet prices have seen a decline of RMB 20-80/mt ($3-12/mt) compared with the previous week.

According to newly-issued statistics, China's rebar production in December 2009 totaled 10.8846 million mt, up 1.4375 million mt or 15.2 percent year on year. Average daily rebar production during the month in question reached 351,100 mt, down by 20,000 mt or 5.4 percent month on month. Meanwhile, domestic rebar production for the whole of 2009 reached 121.506 million mt, up 25.9051 million mt or 27.1 percent year on year.

China's wire rod production in December 2009 totaled 8.7252 million mt, up 1.6625 million mt or 23.5 percent year on year. Average daily wire rod production during the month in question reached 281,500 mt, up by 1,200 mt or 0.42 percent month on month. Meanwhile, domestic wire rod production for the whole of 2009 reached 95.8574 million mt, up 16.5549 million mt or 20.9 percent year on year.

China's rebar exports in December stood at 20,600 mt, down 13,700 mt or 39.91 percent year on year, totaling $13 million in value, down $12 million or 47.05 percent compared with December 2008. The average export price was $637.51/mt. Total rebar exports in 2009 reached 305,100 mt, down 863,100 mt or 73.88 percent, amounting to $197 million in value, down $741 million or 79.04 percent year on year.

Rebar imports in December stood at 3,400 mt, up 2,200 mt or 180.51 percent year on year, totaling $2 million in value, up $1 million or 98.42 percent compared with the same month of the previous year. The average import price was $640.17/mt. Total rebar imports in 2009 reached 56,400 mt, up 31,100 mt or 123.41 percent, amounting to a total value of $36 million, up $20 million or 120.47 percent year on year.

China's wire rod exports in December came to 159,600 mt, up 26,800 mt or 20.15 percent year on year, totaling $85 million in value, down $6 million or 6.82 percent compared with the same month of the previous year. The average wire rod export price was $534.48/mt. Total wire rod exports in 2009 reached 1.0821 million mt, down 3.9737 million mt or 78.6 percent, amounting to $587 million in value, down $3.787 billion or 86.59 percent year on year.

Wire rod imports in December amounted to 64,000 mt, up 32,200 mt or 101.38 percent year on year, totaling a value of $61 million, down $17 million or 37.51 percent compared with December 2008. The average wire rod import price was $953.35/mt. Total wire rod imports in 2009 reached 509,200 mt, down 11,800 mt or 2.26 percent, amounting to $513 million in value, down $158 million or 23.59 percent year on year.

In the coming weeks, more construction sites are expected to suspend activity and the volume of market trading will decline. It is expected that the longs market will remain on its sliding trend during the pre-holiday period, though the decrease margin is likely to be limited.