Mr. Li Xin, Director of the Metallurgical Industry Planning Institute in a recent interview commented on the steel prices and its scenario in China. The key highlights of the interview are as follows: .
1. Steel prices are rising for reasonable output and growth of steel sectorSteel prices have increased since it is the capital intensive industry so reasonable return is inevitable.Secondly steel price index has also moved up only by 8% against 100 points in Apr’94 and is currently at 108 points, compared to other industrial Sectors which have shown much higher growth. Iron & steel enterprises have achieved the profit margin of 3.04% in H1 CY17 against 6% achieved by other industrial sectors. Also after Surge in steel prices around 20% of enterprises are running at loss. Although steel prices in China have increased significantly but it doesnt seems unusual and looks reasonable.
2. Iron ore price hike seems unreasonable – Their is no specific reason for hike in iron ore prices since oversupply of iron ore continues with port stocks around 140 Mn.T. Also, elimination of intermediate frequency furnace along with increase in scrap production has reduced the demand for iron ore. Still the domestic prices of iron ore moving from USD 50/MT, CFR to the current price levels of above USD 70/MT, CFR.Thus it is justified that iron ore prices is not pushing steel prices.
3. China’s real estate investment growth driving rebar prices -in the starting of this year, Re-bar prices are recorded at RMB 2600/MT, which has increased up-to 50% in first half of 2017 owing to increase in construction activities. Infrastructure investment has grew by 20% has pushed the rebar prices in domestic market. Mills producing cheaper quality re-bars have been closed which has affected the supply to greater extent lead to price rise.Thus future market speculation is not the reason for rise in re-bar prices but growth in investment in China’s Steel Sector.
4. Elimination of illegal production capacity beneficial for sound market order-Illegal and low end production capacity should be eliminated with the motive to establish fair and competitive market. Also focus should be on regulation and supervision the laws and to establish long term mechanism in which everybody can contribute for growth and development of steel industry.
We must comply with “Environmental Law” to promote healthy development of the industry. Thus the steel firms that do not meet the existence of environmental Violations of enterprises, it must be discontinued, limited production, which should be generally accepted.
Environment protection programs has not been initiated this year leading to excess steel producing capacity of steel mills,Another reason is absence of strict rules and regulations for steel enterprises when violated the environmental laws. So Environmental Law should be formulated to promote healthy development of steel industry.
“Domestic billet prices in China have increased sharply today. The question is, how long Will the price bubble be maintained? The Chinese congressional party convenes every 5 years and its next meeting will be held to review government performance in the early winter of Q4-2017. The current Chinese government will not change the current policy on investment growth, and therefore the high demand for steel Will be sustained and Sustained at this time.” – shared a market participant.
Source Steel Mint powered by Keyvan Jafari Tehrani
