SteelHome website held the 20th steel saloon on July 27, 2010, more than 100 delegates from steelmaking, distribution and related industries attended the conference.

Wu Wenzhang, President of SteelHome website, presided at the meeting. Wang Jianfu, Deputy Director of SteelHome Research Center, gave an analysis speech on the supply and demand balance in recent Chinese steel market.

The participants had an extensive discussion on China’s microeconomic development and Chinese steel industry outlooks.

Liang Xingdong, President of Anshan Xingdong Group Economic & Trading Co.Ltd., said the steel prices had slid over three months and had broken the bottom line in July. Steel market should and need rebound at this time.

Targeted at the questions and doubts on the continuity of the rebound, “It takes some time, the misgivings will be cleared out around Aug 5-15 when market will set up upward trend” said Mr. Shen. Guanfa, General Manager of Shanghai Changjing Trading Co., Ltd.

Sheng Zhicheng, Information Supervisor of Xiben New Line Stock Co., Ltd., thought that market hold mixed views on this steel price rebound and that not everyone considered it as the start of an uptrend. Given the complicated situation in Chinese steel industry, we shouldn’t be too optimistic at the present stage.

Chen Xuekui, General Manager of Baosteel Metal Co., Ltd., shared the same prudent attitude towards Chinese steel market outlook in the latter half of the year based on four reasons. First, the nation is adjusting economic structures. Limits on high energy-consuming industries and credit loans would lessen steel demands; second, the central government’s rigid examination on local government debts will delay or suspend local projects and thus lower steel demands. Third, export environment in the rest of the year is bleak; fourth, the monetary policy won’t be too loose for the sake of curtailing inflation.

Mr.Wu made a final and keynote speech at the meeting.

Mr Wu said this round of price rebound was determined both by supply and demand balance and by steel mills’ diving profit or even losing money.

Supply and demand aspect: In June, China apparent steel consumption dropped 1.2 percent year on year to 49.32 million tonnes on a crude steel basis; while none of the downstream industries reported negative growth. SteelHome estimates ASC will increase at 8.3-8.5 percent t this year, but if the underreported production of Hebei province was reported, real ASC will grow at less than 7 percent this year. This figure can’t sustain the 9 percent of China’s GDP growth and China may need to resort to consuming steel inventory.

Mr. Wu said destocking can’t last long as some of the inventory would be used in physical trading of steel futures and E-Commerce trading and steel has been playing more like a financing tool than a simple commodity.

Steel mills’ performance: Chinese steel prices had been sliding over three months. Ever with this rise, steel price increase rate is still falling behind that of raw material price. Take rebar in Shanghai for example, currently, the price is only CNY 200 higher over the average level last year. S Korean and Japanese mills agreed the contract price for Q3 iron ore shipments at USD 147 per tonne (FOB). The average price of imported iron ore in China will be no less than USD 135 per tonne in the third quarter even if Chinese steel mills buy more in spot market. If steel prices continue to move at this low level, most Chinese steel mills would remain in loss for the rest of the year. This is unthinkable.

Speaking of the outlook in Chinese steel market, Mr. Wu said the steel price would rise with undulation; and the bottom will be up than previous lows. At the same time, Mr. Wu didn’t rule our any exceptions. For the remaining year, Wu suggested distributors to keep inventory at a reasonable level and buy low on the dips.

a) China set a clear aim throughout policies; capital will remain relatively abundant.

Just on July 20, Chinese President Hu Jintao said that the government would stick to the pro-active fiscal policy and moderately loose monetary policy in the second half of this year to ensure a stable and relatively rapid economic development. “We should strengthen our awareness of current risks and challenges the country is facing in economy, and firmly implement the central government's policies to ensure a stable and relatively rapid economic development,” said Hu. He also stated that the government would maintain the continuity and stability of its economic policies to make them more targeted and flexible according to new conditions.

What President Hu said indicates that a stable and relatively rapid economic development still take top priority in China’s macroeconomic control. Proactive fiscal policy and relatively loose monetary policy won’t change.

b) Downstream users have been relying on inventories since late May. Currently inventory is low. In the next months, buyers will be into the market and rebuild the stock.

C) Steel prices is running at bottom level. Both imported ore and Hebei iron concentrates have price rise in line with the steel price rise last week. Meanwhile coking coal supply is a bit tightened this year. Chinese steel mills are hard to find a way to reduce operating cost.

d) China continues to adjust its real estate industry and China stock market swings at low level.

Bulk commodities, including steel, would probably be a better choice as investment in house and stock may not generate good.

e) The inventory replenishment in international market doesn’t come to an end. Despite the shadows at international financial market, the world economy is still recovering. Latest forecast from IMF said the world would witness a 4.6 percent growth rate in 2010. Meanwhile, automobiles sales in North America are still satisfied. All those factors would help boost global steel demands.

On the whole, in August, China steel prices would rise with fluctuation. In Sept- Oct. with the recovery in China steel production and Northern and Northeast China would start winder reserve of iron ore, China iron ore market has little room of downfall, which may further bolster up steel market.