Chinese longs market posts bounce before entering stable trend

China's domestic long products market continued to rise at the beginning of the past week; however, due to the gradual weakening of trading activity, further upward movement in the market was hindered and so the market started to move on a stable trend. Despite the rare good news of decreased inventories and increased prices of imported billet, Chinese mills have consistently posted relatively high production levels and, taken together with the drop in raw material prices, this has resulted in increased pressure on the domestic market.

Remaining on their previous trend, China's leading markets continued to climb at the beginning of last week, though at the same time a weakening was observed in the trading performance. Coming up to the second half of the week, prices in the various regions moved on a fluctuating trend, with no big change seen in the market.

Despite the moderate rebound in market prices, the mills still continued to maintain a cautious approach. Last week, 15 mills made adjustments to their ex-factory prices, with 13 of these mills lowering their prices in a bid to attract orders from traders. China's crude steel output registered a month-on-month decline in early March (March 1-10), before climbing again during the mid-March period (March 11-20), with mid-March daily output recovering to 1.39 million mt. In the context of the current high production levels, it is not easy for mills to hike their prices.

Meanwhile, raw material prices have continued to go down in recent days, leading to a decline in mills' production costs, thus providing another good reason for mills to maintain their high capacity utilization rates. Under pressure from such production levels, there does not appear to be much possibility of a rise in prices for the time being.

Nevertheless, good news has also been heard in the market. Last week, inventory levels in the various regions went on falling. According to the latest statistics, by the end of last week, rebar inventory in Shanghai amounted to 439,000 mt, down 13,000 mt week on week; wire rod inventory totaled 101,000 mt, down 15,000 mt. Finally in Beijing, rebar inventory decreased 27,200 mt to 282,500 mt, with wire rod inventory in Beijing down 2,500 mt to 130,200 mt.

In addition, import quotations of billet also retained their rising movement in the past week. Currently, Chinese importers are generally receiving offers of around $360-370/mt CFR, up $20-30/mt week on week. The international billet market posted a certain recovery in recent days, which will reduce the impact of import materials on the Chinese market.

On the whole, the Chinese long products market is moving towards recovery. Despite many negative factors, the market is expected to move on a fluctuating trend in the coming days.