Chinese meltdown scythes steel stocks

Metal stocks, especially the scrips of steel manufacturers, have been hammered down on the bourses in the last few days though some bargain buying was seen today at lower levels.

Concerns of a slowdown in Chinese demand on the back of the Chinese government initiating steps to cool down the economy, seems to be the main reason worrying the markets.

Players indicate that strong demand from China has been the key driver for global metal prices in the last one year or so but Chinese prices have tumbled in the last two months.

In fact, global steel markets have been showing diverse trends with respect to demand and prices in the last few weeks.

However, industry watchers expect a revival in Chinese demand towards the end of the month, which may drive prices up, as other markets are already offering good prices.

The US market has bounced back strongly, and a buoyant demand in Europe and Middle East is holding prices firm. In the US and Europe, demand for hot rolled coils has been on the rise, pushing prices above $500 levels.

"Cold roll and galvanised products have been commanding a good value in the US market, and with HR products catching up, prices of CR and GP/GC products are expected to firm up further," analysts said.

In a reversal of trends, Chinese hot rolled coil prices have been lagging behind by as much as $50 per tonne, compared with prevailing prices in the US market.

However, the demand for steel has not dipped in China, industry sources said. "It is just a matter of time before the Chinese market is revived."

The Chinese government has been curtailing spending on infrastructure projects to avoid overheating of the economy. In the year ended March 31, 2004, China's consumption of steel was around 230 million tonne, while the country has accounted for a consumption of over 250 million tonne in the current year's budget.

Analysts tracking the international steel market are expecting a recovery in China by May end. "Last year also, the Chinese ports were clogged between March and May and prices had slipped due to the inventory build up. We are experiencing a similar situation now," sources said.

Meanwhile, the Indian steel sector is witnessing an uneven demand and price situation and although steel prices in the country have remained unchanged due to an unofficial price control by the government in the last two months, premiums on most products have been zooming in the last couple of weeks.

Steel traders say that there is a significant gap between the demand and supply of long products leading to a hike in premiums.

"In some long products, demand is almost double the supply, and premiums are as high as 20 per cent on the ex-factory cost," a steel trader said.

However, domestic demand for hot rolled coil has been softening in the last few weeks.

"With China and neighbouring countries slowing their imports of HR coil, there is more material available in the local markets and this has also put a slight pressure on prices of these products," a steel analyst said.

"There is a strong possibility of a recovery in hot rolled coil prices in China in the next few days. If that happens, global steel price trends would go up, as other markets are offering good prices currently," analysts said.