China: Steel prices toward a bull market

China , Commodities , Metals , Stainless Steel , Steel Sep 05, 2013 No Comments

Steel rebarSteel reinforcement-bar or rebar advanced 10 percent to 3,735 yuan on the Shanghai Futures Exchange since reaching this year’s low on June 14 and may extend the rally to 20 percent by the end of 2013, meeting the common definition of a bull market according to a Bloomberg News survey of analysts.

In August this year, the purchasing managers’ index (PMI) of China’s steel sector increased to 53.4 percent, up 0.9 percentage points month on month, as announced by the China Steel Logistics Committee which is part of the China Federation of Logistics and Purchasing.

Also, the new order index for China’s steel sector stood at 57.9 percent, up 0.6 percentage points compared to previous month. Meanwhile, the export order index was stable month on month.

In the same month, the finished steel inventory index was 37.8 percent, up 4.2 percentage points compared to previous month. With the support of the rebound in the Chinese economy and the improvement in the European manufacturing industry, most insiders are optimistic on the outlook for the domestic steel industry.

The appetite for steel suggests sustained demand for commodities, even as Premier Li Keqiang tries to curb excess lending and shutter inefficient plants in industries from metals to cement.

Imports from copper to crude oil are rebounding as manufacturing data add to signs that China will meet Li’s 7.5 percent growth target this year.

The overcapacity that everybody was so worried about is turning out to be moot because 2013 is shaping up as a record year for steel demand,” said Jia Liangqun, chief analyst at Mysteel Research. “To reduce the pain as it re-balances the economy, the government has no choice but to keep doing one of the things it does best — investment in infrastructure, real estate and fixed assets.”

Chinese steel mills and traders reported a pick-up in orders in August, with a big improvement from construction and infrastructure, prompting plans for higher steel production in September, Macquarie Research said in an Aug. 29 research note. “With orders looking strong, mills report that capacity utilization has pushed up in August … and mills are giving a strong signal that they plan to increase output into September,” it said.

Rates for Capesizes, the biggest iron-ore carriers, more than quadrupled to $19,811 a day this year, according to data from the London-based Baltic Exchange, the publisher of shipping costs along more than 50 maritime routes.

Chinese iron-ore imports rose 17 percent to a record 73.14 million tons in July, customs data show. Iron ore at China’s Tianjin port, a global benchmark, rose 24 percent to $138 a ton since the end of May, according to Steel Index Ltd. Daily crude steel output increased to an averaged 2.15 million tons in the first seven months, from 1.95 million tons a year earlier, according to China International Capital Corp.

“Market sentiment always swings between despair and hope for rebar,” said Kai Ma, a Beijing-based analyst at CICC. “But as long as property and infrastructure keep growing, demand will hold up.” “Iron ore prices are likely to sustain the gains in coming two weeks as steel demand remains intact and mills will need to continue buying the raw material,” said an iron ore trader in Tangshan city of northern China’s Hebei province.

Some mills are slowing purchases after heavy restocking drove up iron ore prices by 6 percent in August, the third monthly gain, while the mills are still running at the maximum utilization rate, traders said.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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