SHANGHAI, Aug 2 (SMM) - In June, the US Consumer Price Index (CPI) soared to 9.1%, an increase of new record in nearly 41 years. The US core PCE price index rose 4.8% year-on-year, higher than the market expectation of 4.7%. As the macro data reflected high inflation, the PMI displayed a downward trend. In July, the Fed raised interest rates by 75 basis points, and Powell delivered a dovish statement. As a result, the market sentiment turned from extremely negative to bullish, prompting the prices of most commodities to rise. On the day when the rate hike was announced, the most-trade HRC (hot-rolled coil) contract jumped 3.74%. The most-trade SHFE zinc contract gained as much as 3.92% in a single day.
What about the impact of the rate hike on the galvanised sheet/plate sector?
First, the inventories of finished products and raw materials both declined. The inventory of galvanised sheet/plate had accumulated previously, but after the 75 basis point rate hike, the ferrous metals stopped falling and the zinc prices rebounded. As buyers tend to purchase on rises instead of dips, terminal manufacturers began to purchased galvanised sheet/plate amid rising zinc prices, which lowered the inventory of finished products. At the same time, when the prices of commodities had bottomed due to bearish market sentiment before the interest rate hike, most large galvanised sheet/plate manufacturers had finished the restocking of raw materials. As manufacturers gave priority to consuming the raw material inventories amid rising commodity prices, raw material inventory also declined.
Second, the average operating rate increased. The operating rates of some galvanised sheet/plate enterprises in north and east China increased slightly. Specifically, the increase stemmed from the improved efficiency of the coating and galvanising lines, while the number of production lines under operation remained basically unchanged. The operating rates of galvnised sheet/plate producers in south China was flat. According to SMM survey, the market generally takes a wait-and-see attitude. Most galvanising manufacturers have received orders that could be delivered within one month, and have a bearish sentiment towards the demand of the September-October peak season. As the manufacturers need the time for production preparation such as recruitment, the production resumption was slower than market estimate.
On the whole, the current domestic demand grows slowly, and the market holds a bearish attitude towards the future. Due to overcapacity, the enterprises mainly focus on digesting current inventory, and the average operating rate could hardly return to previous level. However, considering that the current order cycle of galvanized sheet/plate enterprises ranges between 5-16 days, it is expected that in late August, when the high temperature and extreme weather gradually subside, galvanised sheet/plate enterprises will receive more orders. The average operating rate of galvanising enterprises is expected remain stable in September and October.