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Steel prices ease on slow inventory rundown
Updated: 2009-03-20 11:41

Chinese spot steel prices edged down 0.4 percent, falling for a sixth consecutive week, as inventory rundown remained slow due to sluggish demand from end users and slumping exports.

Prices of China's benchmark hot-rolled coil dipped to around 3,333 yuan ($487.7) a ton this week, from 3,290/3,400 quoted last week, data from Metal Bulletin showed.

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"Total inventory held by traders appears quite high, at around 11 million tons, and that suggests expectations for demand recovery from end users were much weaker than expected," said a trader.

Increased output from mills, which boosted production in the last two months following the government's nearly $600 billion stimulus package unveiled in November, and plunging exports, have added further supply pressure.

"Inventory build-up has been quite dramatic, because end users now keep their purchasing amount to a minimum level to meet just in time production," said another trader.

As steel demand from its major overseas markets tumble, China now expects to become a net importer of steel products in March after more than three years as a net exporter.

The China Iron and Steel Association also estimates that exports, which showed a 52 percent tumble in January-February, will fall 80 percent this year, much worse than a prior forecast for a 50 percent drop, as the country's overseas markets struggle with their own oversupply.

Neighbouring Japan, a major buyer of Chinese steel, said on Wednesday its crude steel output in February fell a record 44 percent to its lowest since 1968, marking the fifth straight month of decline as Japan slides deeper into recession.

In response to weakening global demand, China now seeks to curtail domestic production by 8 percent, to below 460 million tons this year.

But annualized production in February already reached nearly 530 million tons last month, as mills rushed to raise run rates, further destabilising steel prices and prompting imports of iron ore to hit record highs.

Production may slow down again as some mills consider supply cutbacks on squeezed margins, and a sharp increase in iron ore inventory suggests the trend has gained some momentum, traders said.

Iron ore stocks at China's major ports have increased by around 4 million tons in one month to more than 62 million tons in March, traders and analysts said.

"We expect inventories to continue rising in the short term as iron ore arrivals at Chinese ports continue to exceed underlying demand from the steel mills as the margin squeeze in steelmaking intensifies," Goldman Sachs JBWere said on Tuesday.

"Chinese imports of iron ore increased by 6 percent in the first two months of this year and we expect March to be another very strong month for imports."

In South Korea, major producers are cutting steel prices due to weak demand.

Hyundai Steel, the country's second-largest steel firm, cut hot-rolled coil prices by 14 percent this month and its bigger rival POSCO has said it would adjust prices after concluding annual iron ore negotiations.

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