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Misery deepens in Chinese steel market in 2014

Chinese steel industry has never been devoid of calisthenics owing to its sheer size of demand and supply which singlehandedly changes the course of global steel market. Steel demand has failed to keep pace with production for the second consecutive year. If 2013 was marred by credit tightening scuttling steel demand from key sectors 2014 has been more damning with production surging ahead despite surplus inventory and environmental concerns. Demand has remained common sore point all through.
Ironically steel industry has never let go an opportunity at setting new heights in steel production. Reflecting fragmented nature of industry where little control can be exercised has proved to be undoing of the domestic price levels.
Demand from construction sector which accounts for nearly 60% of steel consumption has been sagging with transactions slowing down on tight credit by the banks. Prices of new homes in China dropped in July from June, the third straight monthly decline, and the softness spread to more cities, despite efforts by many local governments to shore up the sector.
China’s once-hot housing market has slowed this year as both sales and prices turned south in the biggest pull-back in two years, driven in part by the cooling economy and by a national government campaign to keep price rises in check.
Weak sentiments in steel market had a back breaking impact on the iron ore price levels plummeting to near second lowest in the past 2 years and making a token gain to mid 90’s (USD 95 per tonne). Surprisingly despite low price levels iron ore imports has not abated owing to cost effective imports and closure of unviable domestic mines. 
Iron ore futures in China also pulled back. Iron ore for January delivery on the Dalian Commodity Exchange slipped 0.3 percent to CNY 657 per  tonne.
However even after sustained drop in iron ore stocks at port it remained at gigantic 112 million tonnes. 
An obvious fall out of surplus volumes at home has been flooding of the international market with Chinese material at very competitive levels keeping any revival tendency at bay. Export volumes from China have picked up substantially this year with nearly 8 million tonnes being exported in July about 43% jump y-o-y. 
Future looks unpromising with half measures at stimulating economy and demand have not yielded substantial results for behemoth churning out steel with impunity. In August daily steel production has shown growth of 3.6% at 1.8 million tonnes per day in the first 10 days. As long as major credit boost eludes the housing sector the chances of an early turnaround is far-fetched. 
SHFE – Rebar Future Contract at all time low of CNY 3000 levels for 5 months

Date Price
05/01/14 3056
06/01/14 3057
07/01/14 3072
08/01/14 3090
08/18/14 3006

In CNY per tonne
Shanghai Rebar – Down by 10% since January 1st

Date Price
2014-01-01 3410
2014-02-01 3280
2014-03-01 3140
2014-04-01 3130
2014-05-01 3200
2014-06-01 3090
2014-07-01 3050
2014-08-01 3060

In CNY per tonne
Crude Steel Production – Grows by 5% YoY in 7 months

Month 2014 2013 YoY
Jan 68.73 63.62 8.00%
Feb 62.08 61.83 0.40%
March 70.24 66.29 6.00%
April 68.84 65.65 4.90%
May 70.43 67.03 5.10%
June 69.29 64.66 7.20%
July 68.32 65.47 4.40%
Total 477.9 454.6 5.10%

In million tonnes
Source – Strategic Research Institute

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