China Steel Market to See Corrections on Liquidity Pressures

2017-02-14

The high sales interest is due mainly to following to two factors. First, goods being built up before the 2017 Chinese New Year holiday created decent profits, so some traders preferred to book profits. Second, cash liquidity pressure is growing. With month’s end nearing, many producers have been required to complete payment before month’s end. 

Shagang Group said in a notice on Wednesday to require pay and pick up goods before February 28, and beyond the time, availability of supply will not be secured, with price principle that the one who offers the highest price obtains the goods.
With steel prices surging, stockpiling costs have jumped by at least 80 percent on a yearly basis, and SOMs enterprises plan to reduce supply volumes to agents, to relieve liquidity pressures. Recent problem of getting loans from banks further grew their liquidity pressures, requiring them to ask for a quick payment. 

On Wednesday, trading was thin following price declines as strong sales in early week after futures prices surged consumed demand in advance. However, some traders planned to purchase goods at relatively low prices due to bullish outlook. 

Moreover, some markets set price limits. In Nanchang, agents received the notice of price limits from steel mills to set price at 3,700 yuan per tonne, higher than market acceptance level of around 3,630 yuan per tonne. Hence, trading in the market was sluggish. In Fujian, steel mills set price guidance at 3,800 yuan per tonne, and despite no price limits, the price guidance reflected optimistic outlook among steel mills. 

In the short term, SMM expects steel market to face corrections due to liquidity pressures, but any corrections will be small.  


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