China Iron and Steel Association predicts in its report this week that Chinese steel production will move slowly but steadily alone with rebounding demand; iron ore price is expected to run low due to hiking domestic iron ore output and sizable port inventories, although demand will rise in accordance with steel production.
In 2011, China 's iron ore import price averaged $ 163.84, up 28.13% year on year, based China Customs; In the meantime, Chinese-mined concentrates rose 15.06%, versus the rise of 10.13% in CISA's China Steel Price Index (CSPI); Large and medium sized steel markers in China posted falling profit to 87.53 billion yuan and declining margin to 2.42% in the year, based on CISA. Apparently iron ore price is still high compared to the persistent weakness in steel market.
In January 2012, Chinese steel market was confined by demand and credit, leading to downtrend in construction, cold rolled coil and strip and stagnancy in hot rolled coil, plate, section and special steels, said CISA.
The market saw no loosening in government policies and credit pressure for real economies remained in place. Before Chinese new year festival, steel mills and trading companies faced heavy pressure from loans; previous active winter restocking and other supportive forces didn't come up this year; liquidating intention was strong on bearish prospect due to falling economic growth in the first quarter and concern about property market regulation.
Although expectation of loosening monetary policy is getting strong, rehearsal of prudent monetary policy in 2012 from China ' s central bank seems a denial to a reverse later on. Key steel consuming industries, including property, railway, machinery, auto, are slowing down; post-festival demand is expected to be low for a relatively long time; drops in raw material prices would be limited; mills will face heavy cost pressure; Steel inventories, particularly of construction steel are rising noticeably.
For a long time, post festival, Chinese steel market will be facing slow demand recovery, rising inventories and low steel prices.
Source: Steel Home