Chinese steel, raw material prices are on the rise

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Amid the doom and gloom on steel prices – at least for producers, you won’t hear consumers complaining — a couple of Reuters reports suggest some of the relentless pressure on prices may ease early next year.

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Demand in top consumer China remains surprisingly robust, yet inventories are falling — suggesting producers are struggling to keep up with demand.

If that were not enough, Reuters reported new starts are being more vigorously investigated and the approval process reviewed, leading the industry to think supply will be curbed further during the winter heating period this year.

A notice jointly issued by the National Development and Reform Commission, Ministry of Industry and Information Technology (MIIT) and the National Bureau of Statistics urges local governments and the State-owned Assets Supervision and Administration Commission (SASAC) to verify the steel firms’ capacity, production and fixed-asset investments.

Both legal and so-called “illegal” capacity is coming under scrutiny, as some mills achieved capacity utilization rates of 150% in 2019 — raising questions about the accuracy of the original capacity estimation.

Mills can by a number of ways, such as using higher-grade ore, boost utilization rates above capacity for a period of time; however, the margin is usually single digits, not 50%.

This month has seen price rises in China for both finished steel products (like rebar, used in construction, and hot-rolled coil, used in medium manufacturing) and raw material inputs, such as iron ore and coking coal, Reuters reported.

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So far, price rises are modest.

But if strong demand continues, it could reduce the volume Chinese mills have available for export and raise the price of material that is sold into neighboring markets, raising the prospect of a firming in global steel prices next year.

It is too early to tell if the trend will continue, but it has been a sufficiently abrupt turnaround in sentiment from last month and will be worth watching in the coming weeks.

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