Analysis points to steel gloom in China

Chinese steel market participants expect new orders to remain subdued in January, though they see some improvement in price levels for both long and flat steel products, according to the latest China Steel Sentiment Index (CSSI) calculated by London-based Platts.

The headline index for January edged up 1.62 points from the month before to 24.45 out of a possible 100 points, marking the fourth consecutive month the reading has stayed below the 50 threshold. A reading above 50 indicates an increase or expansion in orders and a reading below 50 indicates a decrease or contraction.

The outlook for new export orders improved by almost 10 points compared to December 2015, to 34.03, while expectations for new domestic orders were flat against the month before at 23.62.

Price expectations for flat steel products, such as hot rolled coil, rebounded by 38.34 points to 56.07 in January, and the price outlook for long steel products, such as rebar, soared 71.53 points to 77.78.

“The index results indicate a disconnect between expectations for new steel orders and the outlook for price levels,” says Paul Bartholomew, Platts senior managing editor for steel and raw materials. “Market participants are more upbeat about prices since they began to improve from mid-December, but they are less confident about domestic and overseas demand.”

Bartholomew continues, “This is normally a weak time of year going into Chinese New Year and the coldest winter months. The concern is that steel inventory levels will start to climb over this period and put even more pressure on prices next month. Mills may take the opportunity to conduct maintenance work, but the market needs deeper capacity reductions to help support prices.”

The CSSI is based on a survey of from 60 to 75 China-based market participants including traders, steel warehouse managers and mill operators.

Separate from the CSSI, the December monthly average price for Platts China export hot rolled coil prices was $259.80 per metric ton free on board (FOB) China, down 0.5 percent from $261.10 per metric ton in November.