Is the Rise in Chinese Steel Prices in July Backed by Fundamentals?



Chinese steel prices

One of the factors driving US (DIA) and global steel prices this year is the trend in Chinese steel prices. Chinese steel prices rose steeply in March and early April. However, we saw a correction in them starting in late April. To be sure, Chinese steel prices seem to have run up too much too soon. During ArcelorMittal’s (MT) 1Q16 earnings conference call, chair and CEO Lakshmi Mittal also expressed apprehension over the steep rise in Chinese steel prices.

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Prices rise in July

However, after the downward pressure in May and June, steel prices in China (FXI) have risen in July as can be seen in the graph above. Surprisingly, while steel prices have risen in China, we’ve seen a downward correction in steel prices in other markets including the US and Europe.

Even the Brexit vote failed to have a material impact on Chinese steel prices. Stability in Chinese steel prices seems to be driven by improved demand. The country’s real estate indicators showed improvement earlier this year. We also saw Chinese steel inventories decline significantly. These factors support Chinese steel prices.

Having said that, do China’s July steel demand-supply indicators support the uptick in steel prices? We’ll explore this in the next part of the series.

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