29 Jul 2009 14:17

Chinese steel product prices to gain momentum in H2

By Ginger Ding

Shanghai. July 29. INTERFAX-CHINA - Chinese steel product prices are expected to grow further in the second half of 2009 on the back of China's increased investments, rising raw material prices and the anticipated depreciation of the U.S. dollar, industry insiders told Interfax on July 28.

"To date, China's RMB 4 trillion ($585.57 billion) stimulus package and RMB 7.3 trillion ($1.07 trillion) worth of domestic bank loans have seemingly had a limited impact in boosting steel product consumption, but the effect will be more apparent from the middle of the year onwards and push demand up, especially in June and July. Demand driven by increased investment is one of the most important reasons behind the strengthening steel market," Ma Zhongpu, a senior industry analyst with ChinaCCM.com, said.

During the first half of 2009, the country's fixed-asset investment reached RMB 9.13 trillion ($1.34 trillion), expanding by 33.5 percent from the same period of 2008.

"Currently, Chinese steel mills are running at maximum production capacity, as all products are quickly snapped up by buyers. June alone saw China's crude steel output reach 45.39 million tons, with daily production reaching an average of 1.51 million tons, the highest level so far this year," Ma said.

"Rising steel product output and a only slight recovery in exports mean that China's consumption of steel products has improved immensely. Meanwhile, steel product stockpiles of traders and downstream consumers have remained stable. It is of little surprise thatdomestic steel product prices are improving with the market," Ma said.

"Domestic steel product prices still have room to further expand by several hundred renminbi by the end of the year. There may be intermittent corrections, but prices are ultimately going up," Ma said.

Spot hot-rolled steel coil prices on the domestic market currently stand between RMB 4,050 ($592.89) per ton and RMB 4,080 ($597.28) per ton, up around 15 percent from the beginning of July.

The most-traded October rebar contract on the Shanghai Futures Exchange closed at RMB 4,236 ($620.11) per ton on July 27, up 10.11 percent from the beginning of July, and up 18.19 percent from March 27, when rebar contracts debuted on the SHFE.

In addition, increasing raw material prices and other expenses, including iron ore prices, coke prices, and freight rates, are pushing up the production costs of steel mills, and are further supporting product prices, Ma added.

According to Ma, spot iron ore prices at China's ports are higher than long-term contract prices between the world's top three iron ore miners and other Asian countries. The average reference CIF (cost, insurance and freight) price for Indian iron ore grading 63.5 percent jumped by 15.85 percent from the beginning of July to $95 per ton on July 24.

In addition, coke prices in Shanxi Province have recently exceeded RMB 1,700 ($248.87) per ton. The Shanxi Coking Industry Association's reference price for July is RMB 1,650 ($241.55) per ton.

According to Chen Kexin, a senior economist with the Ministry of Commerce's production material monitoring department, the prospect of the depreciation in the value of the U.S. dollar will buoy commodity price rises, including steel products. He believes the bullish commodities market that started in 2001 is yet to end, as bull markets last on average 20.7 years.

An official with the China Iron and Steel Association, who asked to remain anonymous, told Interfax on July 28 that it has become obvious that China's steel product prices will continue to grow in the third quarter thanks to recovering demand from downstream industries, including real estate. However, uncertainties over the sustainability of investment-driven demand make it unclear whether the market will continue its uptrend into the fourth quarter.