Standard Chartered: Chinese steel prices will rebound in Q2

Mr Judy Zhu, a Shanghai based commodity analyst at Standard Chartered Bank Plc, said that steel prices in China may see a mild rebound in the second quarter as traders gradually destock their inventory and seasonal demand recovery begins to set in.

He said “The recent slump in steel prices, especially seen in long products such as rebar, was due to record production and the fact that traders quickly finished their stockpiling while end user demand didn’t pick up fast enough to help traders destock.”

He said “Anecdotes that we collected during the first quarter showed that the capacity utilization rate among steel mills in Hebei, one of China’s top steel producing regions, averaged more than 90% a rate that pretty much means all the mills there are churning out steel at full throttle.”

He said “We estimated China’s overall steel demand growth at 6% this year, befitting our GDP growth forecast at 7.5 to 8%. A lack of domestic consumption means that China will still have to rely on investments to achieve that growth target, a scenario we think is bullish for steel demand.”

He added “We are watching closely the recently floated property curb measures, including a 20% profit tax. However, those measures so far remained too sketchy to have meaningful impact on developers’ new housing starts plans this year. Barring any major disruption to the macro-economy or the monetary policy, we haven’t seen any sign that the developers are sharply cutting back their housing starts.”