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Price war brewing in Chinese steel market – 10 Jun 10

Since Chinese government sent out a clear signal that the real estate market would be strictly regulated in May, many real estate developers have chosen to wait for more information and delay their construction schedule. This change will directly affect market demand for construction steels such as rebar and wire rod. As, nearly 50% of all Chinese domestic steel production is put into real estate market, a new round of steel industry reshuffle is beginning.

1. Wait and watch mood affects demand
Ever since the mid April, Chinese steel market has ended the uptrend in the past seven months and begun to fall. Recently the rebar price has declined by 10%, which means from the previous CNY 4300 per tonne to CNY 4000 per tonne. This is a heavy blow to steel traders. Since the beginning of this year, the sell price of many steel traders has been lower than the factory price by CNY 100 to CNY 200 per tonne. And the obvious price inversion leaves nearly no profit for steel traders.

2. Dependence on the demand for welfare housing
Chinese steel traders are having a tough time, so are steel mills. Their profits were already low before then and now they are exposed to a huge loss. However, industry is relatively optimistic about the future of Chinese construction steel market.

According to the recent policy guidance, Chinese government constrains transactions only to adjust the supply and demand structure, so it is predicted that real estate demand will keep growing after three months. Meanwhile, the government support for welfare housing like economically affordable houses in the future will certainly revive demand for construction steels. Anyhow, we still need time to wait and see.

Jun 12, 2010 07:58
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