The story appears on

Page A11

April 18, 2017

GET this page in PDF

Free for subscribers

View shopping cart

Related News

Home » Business » Biz Special

Steel prices suffer largest, longest drop since June

CHINA’S booming steel prices melted amid faltering demand, miscalculated hoarding on the part of steel traders and production increase.

The country’s steel prices had plunged for 33 trading days in a row as of yesterday, notching a five-month low at 3,590 yuan (US$522) per ton on average, according to Lange Steel Information Center, a domestic steel industry consultancy. Lange’s steel price index posted the largest and longest decline since June after it shrank by 12.7 percent from its peak on February 28.

Lucy Zhu, an independent steel futures trader, “lost almost all I won during the first two months of this year,” she said. “The plunge came a bit unexpectedly.”

She has a point that steel prices rise seasonally during March and April, echoing the rising demand from housing and infrastructure construction.

Things, however, differ this year as the Chinese government curbed credit in the property sector to dampen speculation. The area of new houses sold in China in the first three months rose 19.5 percent from a year ago, the lowest sales growth since January last year and 5.6 percentage points lower than that in the January-February period, the National Bureau of Statistics said.

Rebar, used in house construction, has seen its price plunge since March 14 in the futures market, with its most traded contract for October delivery hitting a three-and-half-month low of 2,912 yuan per ton yesterday. The price also fell in the spot market by 270 yuan per ton from March 16 to date.

“Many traders miscalculated as we didn’t expect the policy shift,” Zhu said.

Previously, while traders might profit from other steel products when one falters, this time they have to “take a ‘short’ strategy across the board” — to make a profit from declining prices by selling high at present — as other major steel products “may even suffer from worse cases,” Zhu said.

Hot-rolled coil, the main raw material used in car production and also generally applied in heavy machinery, plummeted over 560 yuan per ton during the past one and half months in line with a slowdown in China’s automobile market.

Auto sales reversed 1 percent from a year ago during the first three months, while “producers weren’t swift enough to change their strategy,” which led to overproduction in the sector, Zhu said.

China’s car production was over 110 percent more than sales in February, reversing the supply shortage in January, according to the China Automotive Industry Association.

Hot-rolled coil sellers led the profitability in the steel industry by gaining 900-1,000 yuan per ton last year, but “they are now taking a bitter pill” as its prices in Shanghai have been consecutively falling from February 28, said Wang Guoqing, research director at Lange.

Sensing the ominous signals, steel traders have started to flee as trading volumes of rebar and hot-rolled coil on the Shanghai Futures Exchange have been shrinking since the beginning of March, which “further affected the sentiment among spot markets,” Wang said.

Futures traders are not the only ones who made a mistake about a price rally.

However, “they are still relatively lucky, given they can leave the market or adapt trading strategies to lower the risks,” said Ren Xiaolu, CEO at Shanghai E-vans, an engineering service company specializing in metals.

“Several producers and merchants have miscalculated and they now find it hard to escape the dilemma.”

Before the price plunge from March, domestic steel merchants had been hoarding steel products on expectations of higher prices “at least lasting till April,” Ren said. Like the futures traders, these merchants at the end of last year hoped that the seasonal peak in prices would come in the coming months and “bought a lot of steel to spur the production.”

China’s steel prices surged more than 70 percent from a year earlier to peak around 4,110 yuan per ton at the end of February. During the rally, “speculators hoarding steel profited massively, and the producers were fooled into being optimistic about the outlook,” Wang said.

The only thing that industry insiders might be celebrating would be the higher competitiveness of China’s steel in the global market as “the prices finally came down,” Ren said.

Steel traders, engineering service providers or any sector that uses steel as a raw material may also rejoice as they might win more deals overseas.


Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.

沪公网安备 31010602000204号

Email this to your friend