Steel Futures Continue to Slide

In a reversal from the strong growth at the beginning of the year, China's steel future prices have continued to decline and touched a three-month low last week.

On February 5, the major contract price for deformed steel bar on the Shanghai Futures Exchange dropped 0.34 percent at 4,109 yuan per ton, the lowest closing price in three months. Wire steel was down 0.31 percent at 3,913 yuan per ton, the lowest price since November 2009. At the same day, industry information provider Maysteel's price index Myspic stood at 143.7 points, 0.1 point lower from the previous week. It is the fourth consecutive weekly drop of the index.

"The traditional low season with weak demand before the Chinese New Year is the primary reason for the recent performance of steel prices," said Zeng Jiesheng, head of the second research department of Mysteel. According to Zeng, steel inventories across the country have seen continuous growth and reached the highest level since 2009. At the same time, rumors that the central government will tighten credit controls on steel industry also affected the market. Zeng said that traders with high mortgage loan rates are feeling apprehensive on possible banking regulator investigations, and have started to undersell, putting a downward pressure on steel prices.

But a large-scale slump in steel products hasn't panned out, with the seasonally low rate of transactions. According to Mysteel, about a half of steel traders have suspended business for the upcoming holiday. Yao Yunfeng, a senior executive from major steel spot trading platform Xiben New Line Stock Co., said that the current price shows little advisory value as transaction volumes remain weak. The company's steel price index showed a continuous decline since early January.

Upstream steel producers have maintained prices in February. Yao Yunfeng said that under distressed market conditions, steel makers tend to keep prices stable. He predicted that large steel mills will continue to hold prices steady for the March delivery.

Nevertheless, industry analysts hold an optimistic outlook on this year's steel prices. Zeng predicted that prices would start to rise after March and remain upward until August. Yao also expected market demand to pick up in April after traders and factories try to reduce inventories in March, which will drive up market prices.

(Translated by HW)

Full article in Chinese: http://business.caing.com/2010-02-05/100116281.html