Rebar to See Corrections on High Inventories and Lower-Than-Expected Ex-works Prices, SMM Predicts

SHANGHAI, Feb. 22 (SMM) – Shagang Group announced to raise rebar prices by 100 yuan per tonne for the last ten days of February to 3,650 yuan per tonne (list price). After the rise, costs for goods to Hangzhou were 3,600 yuan per tonne, and 3,550 yuan per tonne for ex-works prices. 

Currently, rebar from Shagang Group were offered at 3,680 yuan per tonne in Hangzhou market, creating a profit of 80 yuan per tonne for traders. The price adjustment by Shagang Group was below market estimation, but also made sense. 
Not long ago, China’s five ministries, including NDRC and MIIT, announced the notice on preventing steel prices from skyrocketing after rapid prices in short term and vowed to stabilize the market. The supply-side reform will remain the key part of 2017 work, but Chinese government will not allow steel market to surge like coke in 2016, which soared with coal capacity reduction last year. To act in concert with government policy, domestic steel mills adjust prices moderately, and meanwhile, high profits in January and lower production costs at steel mills for raw material factor, also restricted price hikes. 

After Shagang Group’s price adjustment, Yonggang Group and Zenith Steel Group released its rebar and wire rod prices for the last ten days of February, up by 150 yuan per tonne for both two, with rebar price at 3,700 yuan per tonne. The price hike by the two companies, which was 50 yuan higher than the hike by Shagang Group, also surprised the market, but still below market expectation. 

The lower-than-expected price rise lent no support to market price, and prices in east China market were down by 20-30 yuan per tonne after the adjustment, and trading picked up slightly. Transactions in Guangdong remained brisk. “Price hike could not cool down the strong buying interest,” market players said jokingly, a sign of bullish sentiment towards the outlook. Traders, with high inventories on-hand, showed high interest in selling goods at current high prices. 

After rapid price gains, steel market is now exposed to price corrections in the short term against the backdrop of high inventories and slight price hike by Shagang Group, SMM predicts.

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