HRC prices are going to see further increases in February or early March, according to comments from Mr. Li Zhongshuang, General Manager of Shanghai Ruikun Materials. However, the increase is not expected to sustain for a long period as there is no evident improvement in demand from end users.
Most traders suggest that the increase is likely to spread into March or even April given that Baosteel has raised its ex-works price for March delivery and construction activities resume following the Chinese Spring Festival.
Reasons cited by Mr Li Zhongshuang for further increases are:
1. There would be no evident increase in supply in February. Traders did not build up stocks before the holiday as most are cautious following the recent price falls. Steel makers have also cut steel production with crude steel output in October down 17% year-on-year, for that in November down 20.1% and a 32.8% fall for December. Though some producers have resumed production on price increases since last December, there will be no abrupt rise in supply within a short period.
2. The local market is bolstered by an ex-works price increase by steel makers. Some steel producers have lifted HRC prices by CNY 300 to 400 per tonne which is regarded as a sign that steel markers are optimistic on future markets. Further, the purchase cost of traders is further raised and there is less room for downward adjustments.
3. Steel demand from end users is improving. The economic stimulus package and plans to revive the automobile, shipbuilding and machinery industries are expected to bring more steel consumption in the first half of 2009.
There are also several uncertainties which probably would affect the market.
1. The probable release of steel capacity in 2009 would lead to a recurrence of oversupply. Current capacity for wide hot rolled steel coil has reached 216 million tonnes and there would be another 36.67 million tonnes of new capacity in 2009. It is clear that the overcapacity would be a great threat to HRC market, with prices dropping if demand could not match supply.
2. Lower overseas steel prices would lead to further inflows into China. As Chinese domestic steel prices are higher than those in many overseas countries, the continuous imports of HRC would add to the pressure of soft price in the future.
To sum up, there would be small increase in February or early March, however it is going to resume a downwards trend again on releases of added new capacity, more steel imports and few increase in downstream demand.
Source: Steel Guru
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