Chinese steel market continues on a cliff hanger in September

Inauspicious August has left toxic remnants of debt ridden economy in Europe and US still grappling to come to terms with new realities. The financial institutions in these regions are groaning under surmounting public debt on one hand and unemployment levels hovering above 9%. The grim economic situation calls for drastic cutback of social security measures and state largesse leading to demand generation. Populace left with a mere pittance in disposable income demand generation seems distant.

With the global stock markets as well as the consumption levels biting the dust in the aftermath of US downgrading China was considered to be sole savior. One can’t be oblivious to the runaway growth led by urbanization and demand of consumer durables in the China after the 2008 recession single handedly paddling its way to recovery.

However this time the odds seem to be evenly balanced with the Chinese domestic levels and the futures taking a shocker after the downgrading of US economy by S&P on 5th August. Chinese domestic market which had exhibited distinct proclivity for recovery in the 3rd Quarter with an array of construction projects lined up was numbed.

Q3 expectancy banking on 10 million budget housing and urbanization of tier 2 towns led to surfeit of expectancy. Domestic mills promptly latched on to production crusade ramping up the m-o-m figures with daily crude steel production once again touching 1.94 million tonnes in August an improvement of nearly 0.35% from July.

Steel majors viz., BaoSteel, WISCO, Anshan flexed muscles by hiking September prices by an average of CNY 50 per tonne to CNY 100 per tonne. Expectancy pulled iron ore prices by 5 per tonne in August. Regardless of an all-time high stockpile of 95 million tonnes at Chinese ports mills dared to buy more in the desired grades. Cramping of supplies from India embroiled in mess did its bit in the pot boiler.

August gone the impetus provided by the expectancy is fizzling away with each passing day. The cliff hanger suspense is losing steam as the domestic levels remain dormant. Plausibly mid-August plunder has pulverized the Chinese steel market. Ever widening gap between production and demand has culminated in a burdensome inventory. At the same time inflation refusing to budge has kept the Damocles of hike in lending rate hanging overhead.

Proverbial “Silence is Golden” has been casted in favour of “Silence in killing” as it accentuates restlessness of the mills and traders stockiest. Double edged brunt of slow demand and burgeoning cost is eroding the bottom lines of the mills. Silver September and Golden October proving to be a misnomer by mid it would be apposite to write off autumn revival in Chinese market.

National holiday just over a fortnight away one cannot be oblivious to stockpiling of raw materials as well as finished before the holidays provided there is probability of spike after the holidays. The economic morass besetting the global economy unlikely to recede in Q4 monsoon droplets will get frozen in the winter.

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