SHANGHAI, Oct. 30 (SMM) -- According to Steelease latest survey result, PMI from steel downstream industries was 50.34% and 53.34% in September and October respectively. The PMI returned above 50 for two months, which was largely due to improved consumption during the peak-demand period in September and October. However, Steelease believes that steel price rebound will not be sustainable, with reasons below.

First, increasing supply and reducing demand will restrict steel price rebound. It is believed that steel mills cut or halt production and many traders were reluctant to replenish stocks when steel mills reported losses in August. In September, supply of steel was tight, and downstream stock replenishment pushed steel prices higher. In this context, some steel mills began to resume production following steel price rebound, so output of crude steel in September was up 2% MoM. In early October, crude steel daily average output was up 4% MoM, and crude steel output is quite likely to increase in the future. However, demand for steel will wane during the traditional low-demand period in November and December. The growing supply and waning demand may drag down steel prices.

Second, the month-long steel price increase was closely related to Government approval for some airport and railway projects as well as to the US adoption of QE3. Steelease believes that after the news is digested by market players, steel prices will return to normal level.

Finally, PMI had slipped since February, and haven been below 50 for 4 consecutive months, suggesting sluggishness in steel demand. Although PMI has higher than 50 for two months in September and October, the improvement is within market expectation as September and October are traditional peak-demand period. Therefore, PMI only slightly improves and is not able to reverse weak momentum completely.