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Chinese flat steel market in catch 22 situation2010-07-17[back]

        The future of flat product market looks perilously poised. The withdrawal of rebate on HRC already in place and that on CRC and HDG on the anvil in 2 days time chips are unevenly balanced. On one hand orders in pipeline and existing stocks is weighing heavily whereas on the other hand demand in downstream segments viz., automobiles and electrical appliance is on the wane as buying is being postponed. 

       Analyst opine that the automotive, appliance and other steel consuming industries are facing depleting demand in compendium with falling production level. Statistics indicate that in June this year, domestic automotive production is 1.3 million, down 1.41% MoM with sales volume of 1.13 million, down 5.25% MoM, signifying that both production and sales had declined. 

       Although the mills have been valiantly cutting on production after the rebate removal the sheer momentum of previous months will take couple of months to correct demand supply imbalance. This is resulting in increase in market supply with traders’ selling pressure continuing to increase. Under the condition of oversupply and insufficient demand, HRC and CRC prices seem difficult to recover in the near term. 

       The ensuing months will see steel majors going for price cuts which leaving a debilitating effect on the market sentiments. The tone has already been set with BaoSteel announcing a drop of CNY 300 per tonne on flat product prices on 13th July. The crude steel production has also declined for the 2nd consecutive month to 1.75 million tonne per day against 1.8 million tonne per day in May.

        The end or the bottom out seems hazy at present. The production cuts and market correction have become hackneyed but inevitable priorities for Chinese mills used to blood rushing production.
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