SteelOrbis Shanghai
February was strong for flat products, while it was relatively weak for long products and raw materials.
A. Raw materials
Iron ore
Iron ore market generally remained in a stalemate during the month as neither domestic steelmakers were willing to increase their purchasing prices, nor the miners were willing to sell their
iron ore from low levels. All market players are waiting for the conclusion of international
iron ore talks.
Baosteel held a series of negotiations with major global
iron ore companies however the parties failed to reach an agreement on the price increase.
On the other hand, some local miners, who had capital problems, slightly reduced their prices while some others postponed their mining and concentrating activities.
Nevertheless, the supply and demand of
iron ore changed fundamentally:
1. The global
iron ore supply is on the rise. Brazilian CVRD is expected to yield 220 million metric tons in 2006 and Australian
Rio Tinto is expected to yield 170 million metric tons in 2007.
China has also been developing its mines since 2003. The increases in
production will bring equilibrium to supply and demand relation.
2. Ocean
freight rates have fallen considerably since 2004. The BDI index, which was 6.208 point in December 2004 slumped to 2,407 points in December 2005. However the index has increased recently and is around 2,680 points nowadays. Many Asian steelmakers think the
iron ore prices will definitely go up. Therefore, they have increased their
iron ore shipments, leading to the increase in
freight rates.
3. The appreciation of Yuan restricts the price increase. The US Federation is considering raising the basic interest rate nearly 5 percent to prevent inflation. Therefore Yuan faces more pressure.
On the demand side, the growth rate of
China's crude steel output will be under 15 percent this year. The global crude steel output will increase slightly and even drop in other countries except
China and
India. Therefore the growth rate of demand for
iron ore will decrease.
If the increase range of international
iron ore contract prices remain under 10 percent,
China's cost of imported
iron ore will be equal to that of the previous year, or indicate a minor increase.
Heavy melting scrap
In February,
scrap prices generally remained in a downward trend and the market prices at the end of the month were around RMB 1,700/mt ($211/mt) for the
CIS scrap in Alashankou and RMB 1,940/mt ($241/mt) for the US
scrap in Zhang Jiagang. Most of the EAF using mills are located in South and East
China, which also affects the difference in prices, in addition to the
freight difference.
Current
scrap prices are somewhat high compared to
pig iron, therefore, many steelmakers have reduced their purchasing volume of
scrap in February and preferred
pig iron instead. Consequently,
scrap imports have fallen considerably.
Scrap prices are expected to remain weak nowadays. However,
pig iron prices will increase, which may also lead to an increase in
scrap prices because the inventories have reduced to very low levels.
B. Long products
Long steel prices were low before the Spring Festival and many traders had ordered products from mills in order to pile up inventories. As a result, total amount of long product inventory in Shanghai, Beijing and Guangzhou increased 65 percent to 1.25 million metric tons in February.
Nevertheless, the prices have not improved in overall February. Although steelmakers increased their ex-factory prices, the demand in the market was low. Traders, who had bought products before the increases in ex-factory price increases may obtain some profit at the current price level.
However, the
construction sites are gradually starting their activities after the winter, therefore prices are expected to improve. Meanwhile many steelmakers and traders are now trying to export their long products and billets which would also play an important role in decreasing the domestic supply.
C. Flat products
Cold rolled and hot rolled sheets and coils
Chinese hot and cold rolled prices have increased largely through February and they are still continuing to increase. The price hikes by steelmakers have played an important role in the market price increases. However, the transaction situation was not good in February as the end-users of flat products were unwilling to accept the large increases in such a short time.
Steelmakers' price adjustment was mainly because of the recovery of exports. The decrease in the number of Ukrainian and Russian offers due to winter conditions gave Chinese steelmakers the opportunity to increase their exports. Anshan Steel exported 60,000 metric tons of hot rolled coils in February,
Shagang and
Baotou Steel exported around 50,000 to 60,0000 metric tons. Wuhan Steel and Benxi Steel also exported large quantities of products. In February, offers from domestic steelmakers and traders rose to $400-420/mt FOB from $370/mt FOB during the Spring Festival. Many steelmakers cut their supply to domestic market in order to fulfill their export task.
Cold rolled products also saw a drop in supply. Main cold rolled sheet producers such as Wuhan Steel, Anshan Steel and Benxi Steel cut their supply to the domestic market sharply, aiming to fulfill their export task.
March is generally the business season for finished steel, therefore the market is expected to recover. However, the resumption of Russian and Ukrainian flat product sales will affect
China's exports.
Plates
Transactions for plates recovered slightly in February. Medium
plate prices have increased obviously. However, the increase was artificial. Many steelmakers increased their ex-factory prices, therefore traders did not want to sell their products cheaper and increased their market prices.
China's already high
plate production capacity is expected to increase further in 2006. Therefore, although the prices increase, the
plate market is expected to remain under pressure.