14 Sep 2009 11:45

Planned maintenance at Chinese stainless steel mills unlikely to support prices

By Ginger Ding

Shanghai. September 14. INTERFAX-CHINA - Planned maintenance by domestic stainless steel producers including Taiyuan Iron and Steel (Group) Co. Ltd. (TISCO) and Baoshan Iron and Steel Group (Baosteel Group) is expected to give little support to falling domestic prices, Chinese industry analysts told Interfax on Sept. 14.

"Domestic stainless steel product prices have been sliding since late August, and downstream demand remains sluggish. TISCO is planning to carry out maintenance work from Sept. 23, which is expected to last for a week or two," a TISCO employee, who asked to remain anonymous, said.

He said the production capacity utilization rate will fall to between 70 percent and 80 percent during the maintenance period. Currently, TISCO is running at full production capacity of 200,000 tons of stainless steel per month. The planned maintenance would mean a drop in output of around 50,000 tons to 60,000 tons per month.

An unnamed industry insider told Interfax that another major Chinese stainless steel mill, Baosteel Group, is planning to conduct maintenance in October, which would reduce market supply.

However, industry analysts noted that traders' high stockpiles of stainless steel products and sliding nickel prices are likely to drag down stainless steel product prices in the near future despite temporary maintenance.

"The inventory at the major stainless steel product market in Zhejiang Province's Wuxi City reached a high of 190,000 tons recently, which will limit the effect of stainless steel mills' maintenance periods to support market prices," Xu Aidong, an industry analyst with Beijing Antaike Information, said.

The stockpile at the Wuxi market stood at 150,000 tons at the end of August, while the stockpile at another major market in Guangdong Province's Foshan City also reached a high of 120,000 tons.

"Planned maintenance at the end of September or in early October will do little to change market fundamentals, as demand is usually low in early October due to the weeklong National holiday," Huang Yanhua, an industry analyst with ChinaCCM.com, said.

"Moreover, stainless steel prices previously increased significantly, following surging nickel prices until mid-August. Now that nickel prices have come down and may fall further, it is expected that stainless steel product prices will follow the downward trend," Huang added.

The three-month nickel contract on the London Metal Exchange surged from below $10,000 per ton at the end of March to a high of $21,237 per ton on Aug. 13, and has since seen price corrections. The three-month nickel contract closed at $16,875 per ton on Sept. 11, down 20.54 percent from the high in August.

The average spot 304-series hot-rolled stainless steel coil price on the domestic market fell by RMB 4,800 ($702.99) per ton from the period in mid-August to between RMB 20,000 per ton ($2,929.12) and RMB 20,600 ($3,016.99) per ton on Sept. 14.