Market Trend of Medium Plate of Feb.
Medium plate market will be steady in general after China’s Spring Festival, Mysteel expects. Moderately tight credit policy, tightening liquidity, overcapacity and high inventory pressures on market sentiment, containing the price upward momentum. Price for medium plates continues fluctuation in Feb. It’s expected that the price will have limited space to fall, based on strong prices of raw materials, restricted outputs from the 2nd tier mills and the inflation expectation.
lThe expectation that China will further squeeze the credit remains intense, heated by the soared new loans and the strong CPI in Jan. China’s banks already granted as much as 1.39 trillion yuan of loans in Jan, according to the data from China Central Bank. Since the second half of Jan, some departments made efforts to send a cap on the fast rise in loans. The majority of commercial banks strictly controlled their credit line since the start of Feb. As a result, the new loans in Feb were obviously less than that in those in Jan. Besides, CPI increased at a startling m-o-m growth speed. The y-o-y growth of CPI posted 0.6% in Nov and 1.9% in Dec, 2009. The strengthening CPI implied that the approach of a real inflation. Thus, it will be much possible that Central Bank of China will resort to adjusting deposit reserve ratio, even the interest rate, after the Spring Festival to control the situation. That will wet the market sentiment somewhat in future.
Medium plate market is kind of torpid to the outside conditions, and always senses the changes through HRC market. So, the credit squeeze will have less affection on medium plate market than expected. The prediction can be proved by the relation between medium plate market and HRC market in 2009. Last year, HRC price surged fast and largely due to the abundant liquidity, while medium plate price presented moderate rise, driven by the price surge of HRC. According to the relation, medium plate market will be logy to the financial retrenchment in 2010 and just feel some pressure from the weakening HRC market, which is sensitive to the tightening liquidity.
HRC market, which gives direct pressure to medium plate market at present, also bears high pressure of its lofty inventory. The stock of HRC increases sharply in Shanghai, hitting the record high since end-2009. Adding the seven-day leave for Spring Festival, the stock of HRC is expected to go up once again. Under the situation, it’s natural that some traders think HRC price will fall below 3700 yuan/ton in future, since there is a space from present HRC price to the HRC production cost, which is in the range of 3500-3600 yuan/ton. If the things go as the traders expect, it’s doubtless that medium plate price will dip accordingly.
The market feels less pressure from the supply. 2009’s output of medium plates decreased 1.22m tons from 2008’s, through the capacity of medium plates already topped 100m-tpy in 2009. The capacity utilization rate only posted at not more than 80% last year. High production cost and low market price jointly force mills to limit their productions.
According to the observation by Mysteel, medium plate outputs descended by 2% y-o-y in 2009, while the apparent consumption mounted up by 6% y-o-y, gaining 3.41m tons. But the present inventory of medium plates is only 0.3m tons more than that in same time of 2009. The above-mentioned data shows demand of medium plates was not so poor in 2009. And, the demand will give more effective support to medium plate price than the liquidity. At this rate, the financial retrenchment will leave little influence on the medium plate market.
In addition, the production cost gives a firm support to medium plate price. In recent two weeks, the price of slab still stayed over 3600 yuan/ton, despite the small decline. Based on this, the production cost of medium plate of the 2nd-tier mills would be 3900 yuan/ton, parallel with the present market prices.
To be brief, medium plate market will be stable after the Spring Festival. medium plate price is fixed at a reasonable price at present, and will show limited downward space. Meanwhile, it’s hard for medium plate price to roar up in future, when HRC price is likely to keep going down under the present pressure. Market price of medium plate might move up slightly, if end users make restock around the Spring Festival, when a big part of traders leave the market for holiday.
