SHANGHAI, Apr. 19 (SMM) -- According to the National Bureau of Statistics, China’s GDP expanded 8.1% YoY in the first quarter of 2012, much lower than market expectations and marking the fifth consecutive quarter of decline, an indication of Chinese economic slowdown.

Steelease believes the lower-than-expected GDP growth was a result of stringent curbs on property sector and lower investments. Meanwhile, weak overseas demand is also an important reason behind the lower GDP growth. Chinese economic slowdown will cause the growth of domestic demand for steel products to slow as well, thus weighing down steel prices. Steelease believes domestic steel prices will fall back in May for two reasons.

First, China’s steel prices advanced from March to April due to the seasonal recovery and eased cash liquidity, but the two factors may disappear over the next 1-2 months. The demand generally recovers in March and April, but may turn weak in May. In addition, China’s CPI for March rose 3.6% YoY, a sign of rebounding inflationary pressures, so the Chinese government will not likely ease liquidity over the next 1-2 months.

Second, China’s output of crude steel and finished steel hit a new high, greatly increasing steel supply. China’s average daily output of crude steel was 1.986 million mt during March, only lower than a record high of 1.998 million mt last seen in June 2011. Steel output grew faster than market expected, and growing steel supply greatly slowed the steel destocking activity, with steel inventories decreasing by 1.55 million mt over the past two months following the Chinese New Year holiday, only half of the level for the same period of 2011.

Steelease believes steel inventories will fall slower or even recover amid strong production at steel mills and Chinese economic slowdown, and steel prices will slip then in response.