SHANGHAI, Oct. 28 (SMM) -- The continuously deteriorating European debt crisis hit overall financial markets, and commodity prices plummeted, with stock markets and gold prices fluctuating widely as well. In this context, domestic steel prices should move lower in the future given panic selling in the domestic spot market, coupled with low buying interest, steel inventories kept growing recently, and China’s steel destocking will face more difficulties in the future.

As the construction of affordable housing projects has started, its positive impact on market demand for construction steel will wane gradually. In addition, the Chinese Minister of Housing and Urban-Rural Development Jiang Weixin said recently that the number of affordable housing starts in 2012 will likely be lower than that in 2011, and China will use the national housing information system, banking and finance and taxation system to replace current house purchase limit policy, which also exerts negative impact on steel industry.

Meanwhile, cash flows will become tighter in 4Q, and dealers have to reduce inventories to generate cash, but tighter credit greatly affects the willingness by downstream consumers and middlemen to purchase goods, which in turn prevents steel inventories from falling rapidly. Moreover, only a few of steel mills suspend production for maintenance, with most mills maintaining normal operations. In addition, steel inventories in North China will grow significantly as the weather turns colder, and domestic steel supply surplus will accelerate as a result.

In summary, Steelease believes steel inventories will continue to grow in October since most steel mills still maintain normal production. Steel prices will remain weak in late October, and domestic steel destocking will continue as well.