The high inventories and the imbalance between supply and demand have affected market players’ confidence to Chinese steel market. But the rebound in the middle of October is given a positive impression to players, though it just remains a short time, especially the increase of HR price.
Chinese steel market situation has witnessed lot of uncertainties and ups and downs in the last two months of 2009 due to following factors
1. High level of production
According to the data of National Bureau of Statistics, total volume of plate is 231 million tonnes in the first nine months of 2009 up by 5.4%YoY. HRC and medium strip occupy 119 million tonnes up by 11.5% YoY. In other words, due to high rate of increase, the imbalance between supply and demand has surfaced clearly.
2. Increasing inventories
The first nine months inventories of HR products in main cities of China are 1.2 times than that in the early of this year, far more than other steel types.
3. Raw material price on down path
Raw materials price slightly increased in the second quarter, but it changed in the third quarter. For example, scrap steel price reduced greatly. This fall creates the condition for the reduction of steel price. In addition, the negotiation of iron ore adjusts market players’ mood. They become calm and accept the drop of iron ore price.
4. Increasing supply in international market
Because of the economic recovery, many countries resumed production, thus the steel supply in international market is increasing. According to the data of worldsteel, the volume of crude steel in 66 countries in first 9 months is 866 million tonnes down by 16.4% YoY as compared o 18.1% in first 8 months, reflecting that rate of production cut is reducing.
Moreover, other factors influencing the trend of Chinese steel market are
1. Low increase of newly gained loan effecting steel consumption
2. Likely overcapacity in winter when the consumption would go down and more steel would be added to the inventories
3. Steel export volumes would not be large enough to change the basic situation of imbalance between supply and demand in China.