High inventory forces down prices in Chinese longs market

SteelOrbis Shanghai Under pressure from high inventory and bearish commercial activity, prices in China's long products market began to slip down over the past week. On March 16, the average price of 20 mm diameter HRB 335 rebar in the three major Chinese markets - Shanghai, Beijing and Guangzhou - was down RMB 30/mt ($4/mt) to RMB 3,313/mt ($429/mt), while that of 20 mm diameter HRB 400 rebar was down RMB 44/mt ($6/mt) to RMB 3,413/mt ($447/mt). Meanwhile, the average price of 6.5 mm Q235 high speed wire rod has decreased by RMB 14/mt ($2/mt) to RMB 3,373/mt ($436/mt). The continuing bad weather has seriously curbed normal long products trading, resulting in slow consumption of market inventory. Rebar inventory declined by a small margin, but remains at a relatively high level. Wire rod inventory, on the other hand, continued to rise. Although market players were cautiously optimistic concerning the future market during the Spring Festival period, sluggish sales have impacted greatly on the market atmosphere since then. Moreover, the continuous decrease in flat rolled prices has aggravated even further the pessimistic market ambiance. Last week, China's long products market saw an overall downward movement. In Shanghai, rebar prices decreased continuously by RMB 10/mt ($1/mt) every day, with the weekly decrease totaling RMB 60/mt ($8/mt). Meanwhile, inventory in the Beijing market has already exceeded its previous highest historical level. According to the data issued by the relevant authorities, in the first two months of 2007, China's urban fixed assets investment totaled RMB 653.5 billion ($84.5 billion), up 23.4 percent compared with the same period last year. This growth is down 3.2 percentage points year on year. Among these investments, real estate development totaled RMB 178.6 billion ($23.1 billion), up 24.3 percent year on year. Remarkably, total available urban investment reached RMB 1.1004 trillion ($142.4 billion) in the first two months of 2007, up 17.1 percent year on year. This represented a sharp drop in growth of 12.6 percentage points, indicating tight money supply on the part of end-users. Meanwhile, the Jan-Feb rebar outputs totaled 13.67 million mt, up 5.4 percent year on year. This growth was down 17.7 percentage points compared with the same period last year. Wire rod outputs reached 11.97 million mt, up 19.8 percent year on year. Generally speaking, the pressure on supplies doesn't seem to be great. In addition, domestic raw material prices, such as iron ore prices, have been stepping on an overall upward trend in recent days, contributing to forceful support for long products prices. However, under the pressure of high inventory, the present market still faces temporary fluctuations. Furthermore, during last weekend, the Chinese Central Bank announced a hike in interest rates by 0.27 of a percentage point effective as of March 18 – a move which seems likely to spread even more panic among market players. So while current inventory is being consumed, market prices can be expected to continue to decrease over the coming week.