Reports of Steel Industry Death Are Greatly Exaggerated

BRISBANE, Australia - April 2, 2013 - PRLog -- Anyone tempted to fly into a panic after reading a prognostication of industrial doom should take a deep breath and then read a few more prognostications because the picture changes radically from day to day.

Over the past several days Chinese steel bodies, industry spokespeople and analysts have told the world what is likely to happen.

One piece of gloom came from the China Iron & Steel Association (CISA), which said prices for steel products in China had dropped in the third week of March. CISA said hot rolled steel coils fell 1.4% week-on-week to US$656/t, while cold rolled steel sheets fell by 0.7% w-o-w to $769/t.

SteelCom said its weekly steel products price index for March 19 was 95.3, down 0.24% w-o-w and down 8.68% year-on-year. The index measured overall Chinese price rises and falls since September 2004.

The drops can perhaps be explained by a report from the National Bureau of Statistics that crude-steel output rose 9.8% last month to 2.21Mt on a daily average basis, breaking the record of 2.05Mt set in January. December's figure was 1.86Mt.

Barrons News reported that the surge came amid signs of renewed strength in steel-consuming industries such as real estate and autos.

Investment in fixed assets, including factories, infrastructure and property, rose 21.2% in January-February from a year earlier, the bureau said, and the China Association of Automobile Manufacturers said China's auto market had started the year with a 15% sales gain.

But what about the oversupply? News agency Xinhua said iron ore stockpiles had fallen to a three-year low at major ports this month because of smaller imports, which analysts said could help curb that overcapacity problem.

On March 8, the combined iron ore inventories at 30 major ports had fallen 2.98Mt from a week earlier to 66.54Mt, the lowest level since mid-January 2010, Xinhua said, citing data from mysteel.com.

And the China Securities Journal said iron ore stocks had fallen in a week to 77.75Mt at 34 Chinese ports, citing industry observer umetal.com.

Umetal analyst Zhang Jiabin said imports had dwindled because of bad weather that affected Australia, and the world's major iron ore mines, such as those in Brazil, also exported less in February.

The China Federation of Logistics and Purchasing said earlier this month the iron and steel sector had shown signs of thawing, with the sector's Purchasing Managers Index for February at 58.9%, against 49.3% the previous month.

Those promising indicators were matched by one from Standard Chartered Bank analyst Judy Zhu, who suggested prices might rebound slightly in the second quarter as traders gradually destocked their inventory and seasonal demand recovery began.

"The recent slump in steel prices, especially seen in long products such as rebar, was due to record production and the fact that traders quickly finished their stockpiling while end-user demand didn't pick up fast enough to help traders destock," she said.

"We estimated China's overall steel demand growth at 6% this year, befitting our GDP growth forecast at 7.5-8%. A lack of domestic consumption means that China will still have to rely on investments to achieve that growth target, a scenario we think is bullish for steel demand."

Zhu 's optimism was not matched by steel information provider Mysteel, which said demand had failed to improve after warm weather in early March, according to Xinhua.

"Traditionally, Chinese downstream sectors' demand for steel products would shoot up when the weather turns warm but this year, after the Spring Festival holiday (February 9-15), the situation in steel market leaves the logic in the shade. Until recently China 's steel demand has failed to meet expectations," the report said.

Mysteel said the China Steel Price Index (CSPI) had continued its weak performance in March, which matches the CISA data, and steel plate prices were expected to stay weak in performance.

"So far, the prices of medium and thick steel plate have declined for 11 consecutive trading days in March. Demand from the household appliance industry has not ramped up significantly. Worse still, some end users have even delayed their purchase plans while steel prices are moving downwards."

To continue the see-saw, industry consultancy Custeel said China 's average daily crude steel output hit 2.085Mt in the first ten days of March, up 2.5% from Feb. 21-28, said, citing CISA data, but the figure was down 3% month-on-month.

And on March 18 Vale chief executive Murilo Ferreira said in Hong Kong China's demand for steel would remain strong through the decade, keeping the iron ore market buoyant till at least 2022.

While the country was shifting its economic growth driver from investment to consumption, infrastructure investment demand would stay resilient, he told the Credit Suisse Asian Investment Conference.

As purchases fell in China, Europe and the US last year, iron ore prices fell to a three-year low of US$86.70/t and Vale had its first quarterly loss in a decade. Ferreira forecast the average iron ore price to be between US$110 and US$145/t this year.

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