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China steel prices fall for 2nd week on poor demand
Updated: 2009-02-19 13:43

Chinese spot steel prices fell 4.7 percent in a second consecutive weekly drop, ending a two-month rally, as increased production in the absence of a strong demand recovery depressed prices.

Prices of China's benchmark hot-rolled coil fell to around 3,725 yuan ($545) a ton this week, from 3,835/2,985 quoted last week, data from Metal Bulletin showed.

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China, the only major market where spot steel prices have risen in recent months, spurred by a government spending plan that runs into nearly $600 billion, is now joining other markets as demand continues to remain weak.

"Actual demand remains very depressed and inventory is building up again ... price gains so far appear to be driven by recovery expectations, which have yet to materialize," a trader said.

China, the world's biggest steel producer and consumer, recently boosted output, encouraged by the government spending plan, and increased imports of iron ore, driving global ocean freight rates to a 4-month high early this month.

But the rally, which boosted prices by more than 30 percent between late November and the first week of February, when China returned from a week-long Lunar New Year holiday, has fizzled out in the absence of strong post-holiday demand.

"Near panic conditions seem to prevail in the (Chinese) spot markets as the usual post-Chinese New Year demand has failed to materialize this year," Goldman Sachs analysts said on Tuesday.

As rampant output growth threatens to hurt the recovery, China now plans to cap production at last year's level of 500 million tons by restructuring its mammoth steel sector, an industry source said on Wednesday.

Export prices of benchmark hot coil from China also retreated, reflecting dire market conditions in South Korea and recession-hit Japan, where domestic output has tumbled on weak demand from the autos, home appliance and machinery sectors.

Japan's crude steel output slid for a fourth consecutive month, falling by a record 37.8 percent in January to a 40-year low of 6.37 million tons.

Asia, which relies heavily on exports of cars, ships and semiconductors for economic growth, has seen sharply shrinking overseas sales and factory output as its major customers in recession-hit United States and Europe reduce spending.

Export prices of China's hot-rolled coil free on board (FOB) dropped 2 percent, to $575 a ton, after recovering 25 percent from a two-year low in late November, Metal Bulletin data show.

In South Korea, the recovery in China's construction steel and a pick-up in prices of steel scrap, used to make rebar, had helped traders reduce discounts but prices came under pressure this week amid weak demand, a retreat in Chinese prices and rebounding scrap prices, traders said.

Prices of rebar, which had led China's steel price recovery on the government fiscal spending plan, were quoted at around 3,710 yuan, versus 3,875/4,105 quoted last week.

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