Falling demand and high inventory for China's longs market

SteelOrbis Shanghai China's long products prices continued to climb over the past week. However, under the pressure of declining demand and rising inventory, the current momentum seems insufficient to support a continued increase. Compared to a week ago, on January 26, the average price of 20 mm diameter HRB 335 rebar in the three major Chinese markets - Shanghai, Beijing and Guangzhou - was up RMB 37/mt ($5/mt) to RMB 3,300/mt ($425/mt), while that of 20 mm diameter HRB 400 rebar was up RMB 33/mt ($4/mt) to RMB 3,423/mt ($441/mt). Meanwhile, the average price of 6.5 mm Q235 high speed wire rod was up RMB 30/mt ($4/mt) to RMB 3,340/mt ($430/mt). Affected by the price hike of the five leading mills in northern China, the market in this region continued to jump up sharply last week. Against a background of brisk market trading, end-users were active in stocking up, while the traders preferred to hold their products. Approaching the end of the week, however, some traders started to sell their products with a view to profit-taking, resulting in a slight decrease in deal prices in the market. The eastern China market still maintained its steady upward trend. Influenced by the rising prices in northern and eastern China, the local market saw an active trading performance. Also, due to ascending costs, prices were seen to climb steadily. Meanwhile, the declining tendency continued in southern China. Over the past week, many supplies from other regions flowed into the local market. Shaoguan Steel's conclusion of overhaul work on its rebar production line also helped to increase the levels of supplies in the market. Therefore, with the trading performance taking a turn for the worse, traders did not have sufficient confidence and this also contributed to the continuous price decline. Due to the upcoming Spring Festival, many construction sites are scheduled to conclude their work. Starting from next week, farm workers will begin to return to their home towns, thus weakening demand gradually. The big increase in market inventory last week was also an indication of the decrease in demand to a certain extent. Looking forward to next week, the ex-factory prices announced by the five leading northern mills will have a great impact on the market in the short run. If the prices are set too high, the market will see a rally. But based on the current supply and demand situation, the market faces great pressure before the holidays, leading towards an overall downward trend. With the growing market prices and ex-factory prices, the export quotations have also seen an upward tendency. It appears that overseas customers are unwilling to accept the present price level, most of them instead adopting a wait-and-see stance. According to the latest data released by the China Iron & Steel Association (CISA), China's rebar output totaled 7.47 million mt in December, up 10 percent year on year, while total rebar output in 2006 reached 83.04 million mt, up 16.6 percent. Meanwhile, wire rod output in December rose 13.7 percent year on year to 6.54 million mt, while total WR output for 2006 reached 71.51 million mt, up 18.3 percent.