Chinese steel market needs output cut

According to Mr He Yonghua GM of Shanghai Baoxia Metal Co market prices of construction grade steel products like rebar and wire rod continue to drop since February, making operators puzzled about the future market. Steel market was no likely to warm up without mills' production cut.

He considered that it was no easy to analyze the shape for the construction grade steel products trend of this year at this moment, however, the increasing growth of output exceeded that of the demand. Thus, oversupply would run through the whole year, leading to a stiff situation for steel market with weakening demand and rising resource.

Mr He Yonghua said "The root for rebar price decrease since Spring Festival in Shanghai is the unbalance of supply and demand. He noted, the stock was piling up at 0.6 million tonnes for mills' production capacity release. It is known that construction grade steel products prices bottomed out since last November hence lots of steelmakers turned to produce rebar, some of them even quitted producing slab. For those mills who had suspended their outputs before started to fully produce again."

Further more, the demand of construction grade steel products were heavily impacted by New Year's day and Spring Festival holiday as well as more than 15 rainy days since February. Rebar price tumbled all the time and the market price dropped to CNY 3200 per tonne on March 3rd and some transaction price only posted at CNY 3170 per tonne to CNY 3180 per tonne. It was possible slumped to CNY 3000 per tonne referring to the present trend.

He figured that the price rebound of construction grade steel products was mainly based on plants' efficient control of their production capacities, especially for rebar as its low investment. He added that "Yet, it is not easy to control mill's production release. Mid-and-small steelmakers would rush to produce products as soon as the market price edges up little. Of course, the price would fall back again or even be much cheaper later on just as the iterative rebar price drop only happened in one day on Shanghai market."

He said "The market in the H2 is expected to be relatively better than the first quarter of this year for China's stimulus package, which will take some time to reveal its value. In general, the best way to propel steel market at this very moment was to slash production actively." – Mysteel.net