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Expectation of China Demand Rebound Comes to March

Friday, 24 February 2012 | 00:00
It has been nearly half a year that China's steel price undergoes an adjustment, with a cumulative decreasing range of CNY800 per tonne. Although the news that the People's Bank of China lifts the reserved requirement ratio brings benefit for the capital flow, insiders indicate that the actual rebound is to come in March, when the weather gets warming and a seasonal demand recovers.
China's steel quotation hits CNY45 per tonne on February 21, and certain HRB335 rebar is transacted at a price that is lower than CNY4000 per tonne. These low quotations exert a large volume of pressure on steel companies. On the fifth steel & logistic cooperation forum, Wuhan Steel, Maanshan Steel, Jinan Steel and other large and medium-sized mills indicate that this January they merely realizes a "meager profit".
How meager exactly is the profit? Last year the profit margin sustains 2.4 percent, which has reached the bottom. And some mills see another drop of 50 percent at the beginning of this year.
Bleak demand contributes the most for the low steel prices. Steel PMI organized by the China Logistic Information Center is 47.9 for January. Therein the figure indicating new order is 36.5, hitting a new low since the index monitor begins.
China Iron & Steel Association also points out that, most districts in China is still in a low-temperature, hence the outdoor construction is contained. Moreover, the rate for newly-launched construction is descending as the country is reining in the real estate industry. 70 large and medium-sized cities in China are witnessing a stop-rising price for new houses. Manufacturers confront a similar situation. Automobile sales volume in January is only 1.39 million, dropping 26 percent from the prior month.
Capital flow improvement just rallies steel prices rather than bringing an actual rebound. Adjustment is going while possibility is seen when entering March. People concerned are bracing positive attitude towards the future market.
But insiders seem wary about the trend for the whole year. Yu Gang, CEO of the well-known steel spot transaction platform Xiben Shinkansen, deems that under the influence of macro-economy, steel price might drop CNY300 per tonne from last year. With a margin profit, certain mills are to enlarge their capacity. It is presumed that China's crude steel capacity is to hit 800 million tonnes; and the pressure for over-capacity is confronted everywhere.
The rate for steel mills' direct sales is increasing from 40 percent to the current 70 percent; lots of small-sized traders' markets are squeezed. Meanwhile, large-sized distributors, such as the China Railway Materials Commercial Corporation and China Minmetals, are developing at a rate that is ultra-surpassing the average level, when making use of their brand, capital and network advantages. Under this context of polarization, a shuffle on steel trading kicks off.
Source: Steel Home
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