Nightmare revives in Chinese steel market

Just when the market seemed getting back on track with stable gains over the past 8 weeks misery struck yet again. Steel prices declined for the 2nd day on the trot with 1% loss in rebar.

Sudden retraction has caught pundits unawares with immediate reasons difficult to find. Nonetheless the abundance of negating factors is not farfetched.

Price rise had been fuelled by inventory buildup based on projections of stable demand from the infrastructure sector. Moreover curtailed production by Chinese mills after deluging the market in early 2013 had also led to feeling of supply shortage jerking the sentiments.

Modest outlook on economic growth, IIP and PMI remains unrelenting. Government remaining firm on steady policies rather than stepping up adrenalin by reduction in lending rate fuelling volatility in reality sector and inflation has kept noose on growth in Q3 & Q4.

Downstream sectors are not inspiring. Automobile output and sales volume picked up 12.83% and 12.34% y-o-y in the first six months, a better-than-expected performance, yet confined by the retreating economy, the growth rate is likely to slow down in H2. Other downstream sectors including shipbuilding, home appliance manufacturing and machinery are all mired in recession.

Recent price spark was primarily inventory replenishment and preparatory for enhanced consumption from infrastructure. Moreover improvement in global economic situation is deemed as precursor for improved price levels in Q4 after the European and Ramadan holiday with pre-winter stocking picking up.

However in the absence of any immediate catalyst it seems correction is inevitable with a chance that it won’t be another catastrophe.