Chinese steel market might turn out to be damp squib after Lunar Holiday

Chinese steel market might turn out to be damp squib after Lunar Holiday


With chances of recovery of domestic prices in China next week when markets reopen after New Year holiday being remote, Chinese steel mills could lower their export offers further by USD 10-20 per tonne causing more pain to steel makers in other parts of the world including India

Despair is the last word in Chinese steel market with frequent twists and turns of the dynamics failing to find an outlet from impasse. Even though Chinese steel industry had harrowing 2014 and 2015 fared no better. After a paltry 0.9 % growth in steel production in 2014, the market took second thud with declining steel consumption by 3.4 % to 740 million tonnes, lowest in last 30 years. Piling steel inventory has only led to accelerated export touching 94 million tonne in 2014. In December and January alone the export has been above 10 million tonne signifying the compulsion to ease out volumes otherwise finding no takers in lackluster domestic market.

In consonance with the market sentiments steel production and demand has further receded in the first 6 weeks of 2015 leaving no room for optimism. However expectancy has been building up off late about turn around in market sentiments after the Lunar Holiday (18th-24th February).

Steel demand picks up in after the Spring Break since warming weather brings with it enhanced construction activity. The tendency to expect got more accentuated in contrast to despair and signals of government rearing let go some control over the lending rate in bid to maintain growth at least 7% in 2015 . Much talked about the yearly plan likely to be decided in 1st Week March is raising aspirations of stimulus by a desperate government to rein the downslide of economic indicators.

Chinese mills in the meanwhile have pressed the accelerator to export more volumes despite spanner by the government removing export rebate on some boron added products. But there is strong corroborating evidence that their domestic demand is struggling and as a result domestic steel prices within China are completely bombed out. On the Shanghai Futures Exchange, steel rebar, a form of steel most associated with construction, has spent the last couple of months wallowing at its lowest levels since the contract was launched in 2009. Hot rolled coil, more reflective of the broader manufacturing sector, had been holding up better until it too collapsed in the early part of January.
Export being the only outlet will remain so as the primary outlet for volumes being churned out of Chinese mills post Lunar Holiday as well, since the domestic demand is unlikely to pick up in the absence of any concerted policy measure by the government.

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