Partner

Chinese steel prices likely to go up mainly caused by power restriction

Reading time: min

A report from Shanghai Securities News said that the power restriction, arriving ahead of time this year, caught many steel plants on the wrong foot, which may cause further capacity shortage to steel industry that has already gone through high operating rate, while steel price will gain favorable support from it.

Due to power supply shortage this year, many provinces and cities in China have imposed power restriction and production cuts on high energy consumption industry as represented by steel industry. Part of the provinces and cities demand a strict implementation of peak load shifting production and decrease of stream time, other areas even planned to impose high fines on those enterprises who have not implemented peak load shifting production. Up to now, provinces like Zhejiang, Jiangsu, Hebei and Jiangxi have transmitted orders on power restriction. It is disclosed that the maximum summer power gap in Jiangsu Province was up to 11 million kilowatt, accounting for 16% of the province’s whole power consumption.

Some of the steel mills still haven’t made detailed arrangements on production cuts. However, some have been affected by power restriction policy. As per mysteel, one of China’s consultancy companies, Jiangxi Pingxiang Iron& Steel Co. Ltd has implemented power restriction since the beginning of April, although the blast furnaces are still functioning normally, 5 rolling mills work only 16 hours a day, as a result, about 0.12mln tonnes of production will be affected. At present, steel prices present an overall upward trend due to the demand peak season, therefore, most steel mills’ capacity utilization have approached upper limit, some even up to above 90% to meet the demand. However, the spread of power rationing policy will lead to production capacity shortage, from which steel prices will gain stable support.

According to statistics from China Iron & Steel Association, following the new record of domestic crude steel output in Q1, China's daily crude steel output in April created a new record high, reaching 1.979 million tonnes.

Mr Zhang Tieshan, an analyst from Mysteel, said that "Power restriction is absolutely a bullish factor for steel prices. Traders have generally undergone smooth delivery recently, along with the late rainy season in the south this year, which is favorable for the construction, making it possible for demand to last."

As a matter of fact, both steel futures market and spot market correspond well with the optimistic prediction, with rebar futures rising for straight five days when the stock market eyed an overall fall in the past three days. Some market players compared the power restriction with the energy conservation and emission reduction storm in September 2010 to see whether the two will go the similar way.

Mr Jia Liangqun, an analyst from mysteel, revealed that side effects will gradually emerge due to the further tightening trend of macro control policies. He added that "Growth rate of fixed assets investment is likely to drop, which will affect the demand for steel products."

[0]