Chinese Steel Offers Jump as Market Goes ‘Berserk’

Low inventories and increased demand post Chinese Lunar New Year Holidays lead to sudden increase in steel prices in China.

Steel prices in China have soared high recently after the Chinese policymakers signaled their willingness to boost economic growth thus lifting steel consumption outlook.

Current offers for 2.5mm HRC from China are heard at USD 305-310/MT whereas 0.9mm CRC offers are assessed at USD 360-365/MT.

The sudden improvement in China’s steel market can be contributed to following factors:

Production Cut Following Falling Steel Prices

Steel prices in China kept falling since the start of 2015 and continued for whole year. The steel market hit record low in Jul’15 resulting in huge monthly losses to the steelmakers as high as RMB 10 billion (USD 1.54 billion) during Aug-Dec’15. Thereafter some producers opted for production cuts as capital supply was also tightened by the government.

Low Inventories amid Consumption Season

The production cut resulted in historically low inventories post Chinese Lunar New Year Holidays (7 to 13 Feb’16). As peak season for China’s construction activities is from Feb to May, many projects which were approved last year commenced post holidays. Due to tight money supply and production cutbacks, many small mills defaulted in meeting timely delivery of orders. This led to shortage of steel products resulting in price surge.

According to market sources, as it is difficult to meet this sudden increase in steel demand in the short run, prices will rationalize only after some unusual hike in prices.

CIS Flat Prices also Move Up

With upward movement in Turkey’s domestic demand, HRC/CRC prices by CIS countries have also moved up. Currently HRC is being offered at USD 270-295/MT whereas CRC is assessed at USD 325-360/MT, FoB Black Sea.