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Evidence Grows of a Rebound in Chinese Steel Production
A lack of available capital flow into China’s steel sector appears to have driven a sell-off in steel inventories held by some Chinese steel traders. China Coal Report investigates.
“The opportunity cost of holding steel inventories in working capital has gone up. Faced with this situation, the logical response from traders is to reduce quantities of steel inventories,”
Some analysts are now expecting an improvement in China's steel sector in the final quarter of 2012, driven by restocking demand.
After several months of destocking of inventories, steel mills have now started to restock, with a flow on effect in raw commodities such as coking coal and iron ore.
"The impact of restocking demand and a series of monetary policies have started to kick in, and the economy will be stabilizing,"
Earlier this week Baoshan said it would raise its December product prices by RMB 100/t (US$16).
CBA believes there is potential for a steel restocking cycle to emerge in China’s steel sector over the coming months, but warned “in the presence of tight capital, the magnitude of any cycle will likely be diminished as compared to otherwise.”
The recent firming of China’s steel price, widening of steel mill margins and steadily improving demand expectations thanks to accelerating infrastructure activity should support China’s steel output into 2013, CBA said.
Baosteel’s Ma is meanwhile forecasting improved performance for the whole sector compared with Q3, but warns margins could be impacted by a rebound in prices of raw materials such as coal and iron ore.
Prices for Australian premium hard coking coal into China have improved above $160/t FOB.
More information can be found in the China Coal Report which presents weekly updates on both the producer and consumer sides of the Chinese coal market. With information on trade, transport and policy updates, the China Coal Report provides comprehensive coverage for anyone dealing with the Chinese coal market.
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