Reports from China suggest there are fears that the recent steel price recovery may be short lived. The concerns come despite a price rally of ten straight weeks supported by the government's stimulus package and cuts in production.
Following the price improvement many mills have re-started production, however there are fears that this may be an overreaction by speculative buyers, which would put the steel price under renewed downward pressure.
There has yet to be a significant reversal in the fall in demand and the recent price recovery is a result of large-scale production cuts rather than a reduction in demand. However, construction activity continues to shrink, especially in the housing market, while many companies have slashed capital spending significantly for the New Year, which would suppress demand.
Securities analyst, Mr Matao Bohai, said down-stream demand may not be as healthy as that indicated by rebounding steel prices. Leading mills increased their prices in January in response to the price improvement and are eager to offset heavy losses incurred in the months prior to that. Meanwhile, trading houses have been willing to restock at the moment. Nevertheless, most are more bearish on the outlook for long products on the back of a limited addition to capacity and the infrastructure-oriented stimulus package.
The package is expected to provide a real demand boost for long products, the price of which is estimated to hold steady or edge upwards in coming days.
Steel output grew 15.4% in December compared to the previous month, but output of long products output expanded by 21.8%, while flat products production rose by 9.97%.
Market insiders warn that increasing the supply of long products could weigh downwards on prices since most sheet producers can readily switch production to longs products.
Source: China Securities Journal
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