A survey of Chinese steelmakers and traders has revealted that over 80% of those surveyed expect the market to head upwards after the Chinese Spring Festival. Steel prices rose in January and are stabilising amid falling inventory pressure and a warming confidence though there are still many uncertainties in the market.
1. Upward correction
A steel consultancy institute carried out a survey on prospects for rebar and HRC. With regards to rebar, 64% of steelmakers surveyed believed in a price correction, 36% in an uptrend and nobody in a downturn; while 49% of the traders held the rebar market will be adjusted, 48% thought it would move up and 3%, pulled down. On HRC, 55% of the steelmakers thought it would stay in correction, 30%, thought it would move upwards and 15% thought it would go downwards; while 58% of the traders believed in upside and 42% in correction.
Steel prices kept an upward course in Jan that began in mid-November. The composite steel price increased some 10%, 7% for longs and 13% for flats in specific, reflecting a regaining of confidence. In general, supply remains low as does traders' inventory. Leading steelmakers had lifted the ex-works price for some products before the holiday, which also lent support to the up-trending market.
2. Uncertainty 1-capacity to expand or shrink?
With a capacity of about 650 million tonnes of crude steel, China produced some 500 million tonnes in 2008. This suggests a big room for possible change in output this year.
Steel analyst Liuyuan said the steelmakers' cut in production was the main reason behind decreasing supply and up-trending market at the moment. But this may in turn stimulate more startups and resumptions and threaten the market again if demand recovery lags behind.
3. Uncertainty 2-downstream demand is recovering?
The deteriorating demand for steel from downstream sectors has alleviated according to some statistics. The Chinese economy is believed to have improved, but no significant signals have been seen in real estate, auto and other major steel consuming industries. Though construction steel and railway steel may have a better future on the nation's expansion of infrastructure construction, flats appears lacklustre due to a lack of rapid growth of machinery and a decrease in new ship orders etc.
4. Uncertainty 3-Import and export quite a mystery
This year is expected to bear heavier pressure than last year on steel export because of recession in the economies of the US, Europe and emerging countries. Steel exports have been affected by a narrowing price gap as overseas prices remain low while domestic prices have risen. Moreover, protectionism and changes in exchange rates would dim the prospects for steel exports and force some enterprises to sell domestically products originally made for export.
A diminishing export advantage indicates the home market is facing heavier pressure of import, risking more volatility.
Source: Steel Guru
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