The vagaries of the Chinese steel industry are a colloquial topic but its whimsical pattern has left many operators in the lurch. A breathtaking revival is followed by an even more catastrophic retraction within a span of two weeks.
Steel markets, which rallied continuously for 10 weeks, took less than a fortnight to crumble by CNY 900 (>10%). The crash was imminent in the absence of solid demand from vital sectors. The much-touted stimulus package, along with a slew other demand stimulants in the auto and white goods segments, definitely gave the desired thrust to the sagging industry. At the same time it was widely acknowledged that the price hike was disproportionate. Steel mills made merry feasting on this positive sentiment by upward revision of prices week on week fanning speculation and leading to stockpiles devoid of commensurate consumption.
Iron ore being a key input for steel manufacturer has a strong bearing on the steel prices and vice versa. The fairy run of the Chinese steel prices saw the iron ore prices zoom by an astonishing 64% in during this period.
As a corollary of this crash in steel prices buyers have become cautious about futures and prefer to wait rather than to indulge in any activity. In the last week there has been perceptible drop in buying of Iron ore thereby putting pressure on sellers holding on to large volumes in the run up for maximizing profits.
Iron ore prices had touched a peak of USD 110 CNF Chinese port (USD 82 per tonne FOB , East Indian Port) some deals had been reported at USD 115 per tonne, CNF, Chinese port.
After a golden run since April 23rd 2009, the iron ore spot market for exports of Indian iron ore fines 63.5/63% were trading at USD 110 plus on CIF basis, which started to show signs of softening on August 13th 2009, and has weakened by 4% to 5% during the past week.
Sentiment remain weak in the iron ore spot market as most buyers are expecting a drop of roughly USD10 per tonne by month end. The domestic selling prices for iron ore in China have also gone down by CNY 60per tonne to CNY 70 per tonne during last week and they are likely to dip further this week.
The reduction in sea freight has softened the slide in FOB levels to some extant. But the newly introduced ad valoram royalty and higher inland railway freight in India has cast doom for Indian iron ore miners.
Source: Steel Guru
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