Steel prices to rebound on China’s policy move

China’ Steel spot prices that started declining in the second week of May (down 14% based on hot rolled coil prices) are expected to recover in July. The reasons for the decline were:

1) inventory de-stocking in demand industries that began in May;

2) retail inventory unwinding for profit-taking; and

3) a supply glut fueled by China’s record-high crude steel production in May.

However, East Asian steel prices are expected to begin stabilizing in July, helped by output reductions at major Chinese steel-makers, a cut in China’s value added tax refund rates on exports; and the yuan’s revaluation.