Looking at MetalMiner’s daily China metal prices, you could be excused for thinking that the country has turned a corner and demand is lifting off again. Steel prices have been picking up since the Lunar New Year holidays with increases in the double digits for some items.
The South China Morning Post confirms our findings, saying steel billet prices in Tangshan are up 15% in just three days with price increases across the board prompting some restocking in anticipation of further rises. The paper says the price rebound came in tandem with a clear policy message from Beijing that the government would increase fiscal spending and monetary easing to help boost growth.
At the same time Reuters reports China’s copper imports have surged 50% in February compared to a year ago, to 420,000 metric tons. This follows on from 440,000 mt of refined anodes, alloys and semi-finished copper products in January. Nor is it a simple switch from concentrates to refined metal. Imports of raw material copper ores and concentrates in February nearly doubled from a year ago, jumping 92.1%, to 1.46 million mt, the second-highest after a record in December 2015. February ore imports were up 24.8% from January spurred by strong treatment and refining charges prompting Chinese smelters to boost orders for imports of copper concentrates in November and December with shipments arriving in the first quarter.
So what is spurring steel prices and near record imports of copper? Has the economy turned a corner and is this the start of a rally in demand and prices?
Exercise Caution
We would urge a little caution, copper imports appear to be the product of differentials between domestic and global market prices prompting investors to take positions. Concentrate imports are more a response to higher treatment charges encouraging Chinese smelters to suck in metal while the going was good. Sales of finished product such as bar and wire are no higher today than they were at the start of the year, Reuters reports, suggesting this is more speculative and financial than demand-driven.
Tao Dong, chief economist for non-Japan Asia at Credit Suisse (SIX:CSGN), is quoted by the South China Daily Post as saying there was no evidence yet to call the latest development (the rise in steel prices) a fundamental improvement in end-demand for steel.
Oversupply Still in Effect
The general oversupply situation in China’s steel industry has not changed, he said, a view MetalMiner had confirmed in an interview with a Shanghai steel trader who cannot be named as he is not authorized by his firm to speak to the media.
“The big rise in price is very unusual,” he said. “I remember only two cases. One was in 2008-09, the other one is now. There is a general confidence here in the Chinese market growing, due to government support, but the big rise in steel prices this time is more a short-term response to the easing of lending rules and policy announcements made at the recent Chinese People Political Consultative Conference in Beijing. In my own opinion, the price will come down to the level it should be within two weeks.”
So let’s not get too carried away with sharp rises in steel prices and if buyers are fixing prices with Chinese suppliers engage those suppliers in a dialogue about how they see prices going forward, a little patience may see more sensible prices by the end of the month.