China prices rise to 3-mth top as demand revives

Posted on 12 June 2009

Source: Reuters, June 11, 2009

Chinese spot steel prices rose almost 1 percent this week to a three-month high, supported by a sustained pick-up in demand and traders' restocking amid growing expectations of further price rises.


Prices of China's benchmark hot-rolled coil rose to 3,485 yuan ($510) a tonne, versus 3,453 quoted last week, data from Metal Bulletin showed.


For a graphic on Chinese spot steel prices, click: here


"Despite steady growth in output and imports, steel inventory has stabilised, which can be seen as a signal that demand is slowly recovering, that is encouraging traders' restocking," said a Chinese steel trader in Seoul.


Traders, cheered by anecdotal evidence of end-user demand recovery linked to China's massive economic stimulus plan, have resumed buying since February, betting on further price rises.


In the latest sign of a steady rebound in steel consumption, Baosteel raised July prices for its major product by more than 10 percent, while data showed on Thursday the pace of China's fixed-asset investment growth in urban areas surged in May, led by a recovery in the property sector gained momentum.


Merrill Lynch now expects China's steel demand would grow 8 percent this year, up from the previous 3 percent forecast.


Expectations for improved market conditions gained further momentum this week, as China said it would raise export tax rebates on hot-rolled steel products by 9 percent, a move aimed at boosting overseas sales, which tumbled 60 percent between January and May.


"This is viewed as having a more serious impact than March changes on Asian general spot prices, since HRC is generally in overcapacity within China ... This is a clear attempt by Beijing to export some of their excess capacity onto other markets, and encourage exports," CLSA analysts said.


While the move is unlikely to have any immediate impact on increasing exports due to weak global demand, traders and analysts bet China may increase export rebates in other products such as cold-rolled steel and galvanised products.


China remained a net steel importer in May, as exports dropped by 60,000 tonnes from April to 1.35 million tonnes, data showed on Thursday.


Asian steel prices also held up, with Taiwan's top steelmaker China Steel raising domestic prices by an average of 7 percent in July and August in its first hike this year, as production cutbacks since late last year tightened market conditions.


South Korea's POSCO also expected business conditions would improve in the second half from the current quarter, which it described as its most challenging.


But prices are likely to remain stable as firming spot iron ore prices, which are trading at four-month highs, check the downside, while prospects for increasing exports from China limit dramatic gains.


"This (rises in China's steel export tax rebates) is not a near-term concern. However, it does put a cap on global steel prices, and increases concerns of Chinese exports if its prices were to fall significantly," Goldman Sachs analysts said.


On the Shanghai Futures Exchange, construction steel futures traded higher last week, with September rebar futures SRBU9 rising 2.1 percent to 3,836 yuan and September wire rod SWRU9 gaining 1.5 percent to 3,730 yuan. ($1=6.827 Yuan)


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