China Steel Price Movements December 2009

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Tracking the daily price changes in the Chinese market via the MetalMiner IndX does allow us at MetalMiner to spot some metal price trends in the country before they become headline grabbing issues so we periodically like to share some recent trend lines for those interested in keeping a tab on price movements in the Chinese market. It is sometimes easy to lose sight of the fact that there is a macro and a micro market in operation in China. At the macro level we and many others look at GDP growth, housing starts, stimulus dollars, bank lending and so on but for buying organizations, this really has the biggest impact when translated into actual supply, demand and price movements. The last few months have all been about China’s continued growth, rising GDP figures quarter on quarter, massive bank lending – reigned in a little since the summer but still high, continued strong auto sales and recently, fears of an inflation bubble building in the housing market. The construction market, we are told has remained pumped up by massive highway building, rail construction and electrification projects. On the supply side iron ore, coal and raw material imports have been strong all year and prices have been rising as a result.

Meanwhile in the rest of the world after modest rises in steel prices up to the summer, mills have found price rises difficult to make stick in the Fall. To make matters worse for producers, prices for some products have slipped back and although capacity utilization has improved it is more due to idling plants than any dramatic increase in demand. Prices in the New Year are expected to rise a little for some steel products, driven by gradually improving demand and rising raw material costs. November and December’s steel pricing though has remained under pressure in the US and Europe.

In China, prices have continued to rise from late November through to-date, as continued strong demand has allowed mills to pass on rising raw material costs. Some products have performed more strongly than others as the chart below illustrates.

China Dec Prices

Products used by the consumer goods and automotive industries like cold rolled sheet and coils and those used by heavy industry like plates have risen significantly in the second half of the month. China became the world’s largest auto market last month, up 50% from a year earlier and looks set to continue as stimulus measures support sales.

Steel products used by the construction industry however such as reinforcing bars and structural sections (H shaped Beams) have strangely remained flat or even slightly down suggesting possibly that demand is slackening for these products or that the market is in over supply, even if the market is not in outright decline. The former,   while good for the prospects of cooling inflationary pressures in construction does not bode well for maintaining strong GDP growth, now running close to 10% per annum equivalent. The latter suggests we may see more Chinese construction steel products in export markets in the coming year. MetalMiner will continue to monitor price and market movements to bring you developments on the steel markets in the coming weeks.

–Stuart Burns

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