Steel Product Prices Slip, But Long-Term Outlook Promising

SHANGHAI, Jan. 16 (SMM) – Prices on steel products in China staged a downward trend this week as the influence of favorable news dissipated and as steel products inventories kept rising given the massive replenishments, posing hurdles for price increase. Steelease data reveal that trading inventories for steel products have exceeded 14 million mt, up for the fifth consecutive week. Besides, the falling iron ore prices also left little support for steel product prices to rise.

However, Steelease believes the decline in steel product prices will be temporary, and prices should rally steadily in 1H 2013.

Steelease expects that China’s infrastructure projects may be undertaken in parallel with the global economic recovery in 2013, so the economic recovery will likely exceed expectation. Many Chinese cities set their GPD growth target for 2013 at 12% given an increase in investments prompted by the urbanization. Meanwhile, investments are still emphasized with several cities expecting investments to contribute to 50% of the GDP. Hefei expects its GDP growth for 2012 at 13.5%, while Kunming expects a over 14% growth.

In addition, the recovery in investments will lead to easing liquidity, which will greatly influence prices on steel products. This has been reflected in the post-holiday market when relaxed liquidity following the New Year holiday created conditions for steel product traders and downstream enterprises to replenish stocks and thus pushed up steel product prices. Discount rate at bank's acceptance bills of large sum in Shanghai hit the highest level in 4Q of 6.17% on December 26, and then edged down to 5.59% on January 11. Besides, Shanghai Interbank Offered Rate (Shibor) also touched its highest for the past two months December 31 with overnight rate jumping to 3.87%. The figure was down quickly to 2.08% on January 14. That being said, ample funds is inevitable for the increase in steel product prices.