Chinese mills hike longs prices sharply

Over the past week China's domestic long products market posted an overall increase, against the background of a sharp fall in market inventory levels. At the same time, the leading Chinese mills hiked their ex-factory prices considerably, which appears to have laid the foundation for a future market rise.

Under the influence of the ex-factory price increases announced by the eastern Chinese steelmaker Shagang, the markets in Shanghai, Hangzhou and other eastern regions took the lead in the ascending price trend over the past week. However, with the trading volume shrinking significantly towards the end of the week following the excessive price increase, the market in eastern China began to show overall signs of a decline.

In the north, given the market expectations that Hebei Steel would raise its ex-factory prices by a big margin, the markets in Tianjin and Beijng registered strong growth over the past week. In Beijing, where there was a supply shortage for certain specifications, the market posted a continuous upward movement. Just as in the eastern regions, the northern market also began to slide back down coming up to the end of the week.

The continuing positive performances in both the eastern and northern regions have also succeeded in boosting the confidence of traders in the southern China market. Moreover, local leading mills Guangzhou Steel and Shaoguan Steel hiked their ex-factory prices moderately, driving up the overall market in the south. Nevertheless, due to weakened demand, the market in the south began to register a softening at the end of the week.

The upward adjustments made by the various mills to their prices have constituted the major source of momentum pushing up the Chinese market in the past week. Meanwhile, given the brisk demand and decreased inventory levels, this rising momentum is expected to continue for a certain period of time, helping push long product prices up further. As for the decline in various markets at the end of the week, this is just a normal correction following excessively rapid price growth and is not expected to change the general ascending trend of prices.

As regards raw materials, the domestic pig iron market moved on a stable trend throughout the past week, while the local scrap market remained at the same levels following its previous rise. Finally, the billet market first continued its upward movement before declining like the finished steel markets at the end of the week.

Overall, given the strong consumption levels in the current season, the Chinese long products market has been moving on an upward trend helped along by both mills and traders. Although rising momentum still exists for the future, the current market has also accumulated significant risk, and with the arrival of the rainy season in June long product prices are expected to drop.