Steel prices remain volatile amidst uncertainty

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: Contrary to what most of us believed, steel prices have recovered marginally in China. It is more for HR coils. Elsewhere in the world, the downtrend continues, although in most places, the prices of HR coils are still higher than the domestic prices in China or those exported from that country. Where did we go wrong?

In fact, what looks to be the case at this stage is that the speculative forces are very strong in the country. The Chinese traders too, who booked large quantities at higher prices, will not easily give up losing money in panic. If necessary, they will hold stock. This does not cost them as much as the price they will have to pay for getting driven to panic. It is easily understood, there are limits to how long they can hold stock. Also, the HR coils prices in China’s future market are also high. Many are totally engrossed in that. Fall in prices will not help them.

It is also possible that the mills and the traders have decided not to be aggressive excessively to enlarge their market share in the world market by selling more at lower prices to pre-empt in some way any kind of global attention bringing them to face cumbersome trade cases and in the process lose vital markets altogether. Also, following the global price level, set by forces elsewhere, makes more sense. One needs to keep the prices a little lower and gradually bring them down instead of going all out to grab the market. Therefore, what could have happened logically, a fall in the prices of HR coils to a level below $400 per tonne, has been averted and small adjustments are being made to gradually to move to the $500-520 level to be in line with the global trend.

The fundamentals in the market in China, demand and supply, are still not supportive of the prices at current levels. The actual consumption of steel in China is coming down and there are reports of significant inventory build up across the nation at various levels of the supply chain. The onset of the winter will reduce steel consumption in the country, as also in various places in the northern hemisphere. While the declining trend in the western world expresses the typical seasonal decline, the Chinese market is defying most part of the common logic.