Chinese steel prices continued to rise this week, with demand still robust despite disruptive weather and a seasonal decline in construction activity as winter approaches.

Benchmark hot-rolled coil prices in Shanghai stood at 3,720-3,730 yuan
($544.9) per tonne on Wednesday, up by around 2.5 percent compared to
last week, according to data from the Metal Bulletin.

Chinese steel industry consultancy Mysteel said its composite steel
price index on Wednesday was up 2.2 percent compared to last week, and
has risen 7.4 percent from October.

Prices fell for seven consecutive weeks over August and September, but they have been recovering steadily since early October.

While construction steel prices have dipped slightly, hot- and cold-rolled steel prices are continuing to rise, analysts noted.

Rebar futures for February delivery on the Shanghai Futures Exchange
closed at 4,077 yuan on Thursday, down 1.07 percent over
the day.

“The strength of the prices, especially during a weak demand period,
indicates that the automobile sector is continuing to see good
production,” said Su Aik Lim with Fitch Ratings in Beijing.

Mills are also keen to pass on higher iron ore costs to their
consumers, with Indian fines at Shandong port up to 770-780 yuan on
Wednesday, up by nearly 8 percent compared to last week, according to
Mysteel.

GOOD MOOD

However, concerns remain about the underlying strength of the sector as the low winter season starts.

The construction sector, flourishing largely as a result of a 4
trillion yuan government stimulus package, has driven a large
proportion of China’s domestic steel demand over the last year.

China’s building boom has prompted steel mills to boost output to
record levels, but a seasonal downturn has long been anticipated.

The China Iron and Steel Association said last week that bulging
stockpiles and a seasonal slump in demand were bound to cause a
collapse in prices.

“We need to pay attention to the serious difficulties facing steel
enterprises at the end of this year or the beginning of next year,”
vice-secretary general Luo Bingsheng told an industry conference.

Zhang Chang’an, consultant with World Steel Dynamics, agreed that the market might be too bullish.

“Steel product stockpiles are still rising but prices aren’t falling,
and people feel this is strange,” he said. “There has to be a price
adjustment soon.”

He said that current demand was probably speculative, with many traders
and steel firms banking on a firmer recovery next year. The sector
still faces a tough winter, however, with demand from the construction
sector bound to sag as developers scale back their operations over
December and January, he said.

But the sector as a whole remains in a good mood, with most betting
their fortunes will improve considerably once the export market regains
strength in 2010.

“Price trends will depend on how the market sees demand for next year,” said a researcher from a Chinese brokerage.

“We are predicting demand from real estate and construction to pick up
at the beginning of 2010 and push demand for long products, and steel
prices should continue to rise.”

And steel mills could also be in a strong position to weather the worst
of the winter downturn, with product adjustments helping to support
prices, Lim of Fitch said.

“Capacity might have been moved to other flat steel products as the
automobile and manufacturing sectors improve, and that means production
of construction steel or long steel products may not grow as quickly,”
he said.

Strength is China’s steelmaking sector was already surprising the world’s biggest metals miner BHP Billiton.

“One element that continues to surprise us… is the resilience of the
Chinese steel sector,” Chief Executive Marius Kloppers told
shareholders at an annual meeting.

Iron ore stockpiles rose for the first time in nine weeks last week, reaching 65.87 million tonnes.

Source: Reuters

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