Price decline and sluggish trading in Chinese section steel market

The Chinese section steel market has entered a downward trend over the past week, against a background of slack commercial activity and of increases both in arrivals of new supplies and in market inventory levels.

In the past week local steelmaker Magang made a considerable upward adjustment of RMB 170/mt ($25/mt, tax-excluded) to its section steel prices. However, the market has failed to follow the increased ex-factory prices of Magang and other mills. Considering the current slackness of commercial activity, traders felt that if they followed the mills' example and hiked their prices, the trading performance would be likely to deteriorate even further.

As a result of the high costs of billets and the relatively large stocks held by various mills, operations have been suspended at some production lines in Tangshan in recent days. Anticipating a sluggish trading performance, some mills under increasing inventory pressure are likely to call a halt to their operations.

On the billet side, following their previous decrease, domestic billet prices in China started to move on a stable trend in the past week. At present the mainstream prices of 150 mm x 150 mm common carbon billet in Tangshan are at RMB 3,340 ($490/mt, tax included), with the tax-excluded prices at RMB 3,240/mt ($475/mt); 165 mm x 165 mm common carbon billet is now offered at RMB 3,370/mt ($494/mt, tax included), while the prices of low-alloy billet stand at RMB 3,440/mt ($504/mt).

Overall, the greatest concerns of the market are still on the macroeconomic side. The uncertainty as regards capital supply has been the main factor contributing to the recent fall in the section steel market. Looking at the current situation, it seems difficult to improve the current bearish sales performance of the market by means of cutting prices. Nevertheless, the market's downward trend is likely to continue in the coming period.