The Chinese domestic steel market has been on a Machiavellian run since mid February .Post Spring festival period is typically a phase of revival in Chinese steel market when peak season unfolds with soaring mercury. Moreover this being the period when developmental plans is enunciated setting the tone for demand revival giving a positive thrust.
Year 2011 has sprung surprises wherein the old traditions have been vitiated in many ways. The price rally which commenced towards the end of 2010 and peaked on the eve of spring festival started subsiding with uncanny alacrity post holidays.
The market contour of the last 3 weeks is picture of abject disillusionment wherein aspirations have been dampened.
Optimism post-holiday was writ large with steel majors like WISCO, Baosteel, Angang, Benxi Iron and Steel, Shougang and Hebei increasing prices for March by CNY 300 per tonne for main products viz., HRC and CRC.
However the happenings in the past 3 weeks have been debilitating for the suppliers as well as the buyers viz., traders and stockiest. As for the supplier the input material prices remained unrelenting whereas the buyers where sitting over ticking stockpile accumulated earlier. It is learnt that the stocks of five main types of steel touched 18.5 million tonnes, close to the peak volume 18.58 million tonnes in 2010, up 3.78 million tonnes MoM. With the demand remaining sluggish liquidation of the stock is onerous and severely scuttling buying.
To rub salt to the injury government went on an overdrive in controlling inflation by increasing the interest rate by 25 basis points on the verge of market opening. More so with indications of further deflationary measures has barely helped in sprucing the market.
Although the Chinese New year began with ambitious propositions being the inaugural year of 12 Five Year Plan a slew of demand triggering plans on the anvil as follows:
1. Massive infrastructure development allocation in the 12th Five Year Plan to enhance water conservancy construction with allocation of CNY 400 billion in 2011
2. Construction of 10 million affordable houses- affordable housing programs, with total investment over CNY 1400 billion, is in the offing.
The steel market remained a damp squib with hardly any positive signal of market revival in a traditionally peak season. The much touted house construction program is a distant hue with construction slated to start towards the end of 2011.
Concurrently in capital strapped market the hike in interest rate has severely dented the transaction in property market. Since construction industry is at the forefront of economic activity in China the lull will have pandemic effect with recession in demand from the allied sector viz., automobiles, machinery etc.
Moreover with the steel production climbing from 1.7 million tonne per day in January to 1.8 million tonnes per day in February stock havoc will play havoc as the consumption is sluggish.
The silver lining being correction in iron ore prices off late providing some let in the cost pressure. However even this advantage might prove to be the last straw unless the demand resurrects quickly and severely.
( Source: www.steelguru.com )