Commodities | Jun 29 2009
By Chris Shaw
Recent trends in the Chinese steel market have been positive with buying by both dealers and consumers strengthening since early May, a trend Standard Chartered notes has allowed Baosteel to lift prices for July deliveries by more than had been expected.
The fact inventories are increasing as dealers increase their stockpiles is encouraging in the group’s view, as is the likelihood consumption has bottomed, but there remains a risk the market quickly returns to an oversupply situation in coming months.
As Standard Chartered notes, entering the September quarter demand is typically weaker given the summer slowdown, though the group expects demand will pick up into September and through to the end of the year as infrastructure projects from the government get underway and from a possible boost in property investment.
On the group’s revised numbers, which factor in a 3% year-on-year increase in demand and a 4% year-on-year lift in supply, the Chinese crude steel market should be in surplus to a tune of around 77 million tonnes in 2009. There is potential for a part of this supply to hit the market soon as it notes dealers tend to sell immediately after a price hike, so the fact Baosteel has lifted prices likely means more supply from the start of next month.
This is coming at the same time as the group sees evidence of infrastructure projects reducing their purchasing levels, while auto sales are also showing signs of cooling somewhat. This should put some downward pressure on steel prices in coming weeks in the group’s view, while also slowing the pace at which inventories are being absorbed.
In summary, while conditions should again improve leading into the final quarter, Standard Chartered is now suggesting caution with respect to steel prices over the next several weeks.