Why is China's current steel price rise unusual?
But in China, where steel production capacity is badly in excess and pushing global steel prices down, a funny scene is happening: steel prices are rising despite the pressure on most commodity prices. The trend, if sustained, may have a major impact on the global market and political situation, and the current difficult situation for steel workers remains a hot political issue in the west.
And unlike the past, there are signs that the latest round of steel prices is not just about building more buildings in china. As a huge debt China industrial ills and the country one of the main problems of overcapacity problem, its change: when the economic situation is relatively good when the factory utilization rate will increase, the current situation is such.
This time, however, it seems more complicated. While steel prices continued to rise, overall inflation continued to decline. Monday's June figures showed that most producer prices were flat or downward, but steel prices continued to rise. And rebar prices (usually made from small induction furnaces using scrap steel) are particularly strong this year. This kind of steelmaking furnace is a major target of China's regulatory authorities this year, and regulators have promised to be completely eliminated by the middle of this year.
There is some evidence that this effort is gaining results. China's steel output fell year on year even as demand for mainland city developers remained solid and housing inventories declined as a support for the construction industry.
Reduce the supply plus demand steady, promote the first quarter of this year, the highest level since the Chinese steel industry gross margin reached in 2008, and has been for 9 consecutive months in more than 8%, the best performance since the global financial crisis. Affected by this, the shares of Chinese listed steel companies, such as River steel and Baosteel, rose sharply. So far this year, the share prices of the two companies rose by 34% and 14% respectively. Unlike iron ore, steel kept most of the gains since last year's election.
China has a long history of shutting down excess steel and coal production, but lacks continuity of policy. Once inflation rises, the capacity to be shut down will return. So if the price pressures appear again in the economic sector, this model may emerge. And what is certain is that, despite some progress, the overcapacity situation is still very serious: there is nothing to brag about about 8% of the profits, because margins have been above 10% in the past few years.
Any progress, however, is welcome. Even as the world's leaders dispute over the steel issue, some signs of progress in China, even negligible, will comfort investors who are concerned about the situation.
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