Chinese domestic hot rolled coil prices fell 9% from an average of Yuan 3,993/mt ($658) in 2012 to Yuan 3,676/mt ($605) in 2013, according to Platts' HRC price series, as steelmakers struggled to stay profitable in a weak domestic market.
Flat steel producers, however, were more confident of stronger prices over the next month or so due to fairly low steel inventories and expectations of restocking by traders and mills, according to the latest Platts monthly China Steel Sentiment Survey. Chinese steel prices are typically at their strongest in the January-March quarter, Platts data shows.
Indeed, the outlook for flats prices hit a yearly high of 66.67 in the December survey. The other standout score was 66.66 for the outlook for total steel inventories, compared with just 47.05 in November, indicating that many market participants anticipated flat steel stocks to rise in January.
In fact, HRC inventories in Shanghai declined at the start of January due to limited new arrivals, but the drawdown of stocks was slower than in December.
Platts surveys steelmakers and traders at the end of each month on their outlook for inventory, prices, demand and production. The data is then approached in a similar way to a purchasing managers' index, resulting in a figure which indicates an increase if higher than 50 and a decline if below 50.
The survey found that producers and traders of long steel products were pessimistic about prices in the month ahead, with December's survey showing a score of 37.50, though this was an improvement on November's 28.57. Construction projects, for which long steel products are largely used, tend to slow or even stop in the winter months in China, curbing demand for steel.
Chinese domestic rebar prices have been stable since the start of the new year, lacking any price direction, though some market sources said that greater access to credit at the start of 2014 could result in a build in stocks which would help support rebar prices.
Longs traders expected stocks to rise but most also believed that new orders would decline in January. As a result, they saw no reason for a pick-up in longs prices.
Even though property construction recovered in China in the second half of 2013, rebar prices still fell 8% over the course of the year, to an annual average of Yuan 3,526.40 ($582)/mt in 2013, down from Yuan 3,848.70 ($635)/mt in 2012.
CRUDE STEEL OUTPUT EXPECTED TO SOFTEN
The survey showed that expectation of crude steel production remained below 50 for the fourth consecutive month in December. Crude steel production has been falling since August but the China Iron & Steel Association estimated daily crude steel output at 2.014 million mt/day over December 11-20, almost unchanged from 2.013 million mt/day over December 1-10, indicating that the decline in production had been arrested.
Despite the expectation of a decline in steel output, stocks held by traders were expected to increase with survey participants recording a score of almost 80 for this, compared with 60.77 in November.
Traders were generally keeping inventories low at the end of 2013, but some restocking was likely to occur in the coming weeks on expectations of stronger demand, after the Lunar New Year holidays, which start on January 31, market sources said.
The Platts survey showed a marked deterioration in sentiment regarding new steel orders, with December's score falling to 28.49 from 34.23 in November. This was as high as 77.91 in August when steel prices last saw a rally.
Chinese manufacturing PMIs fell in December, with HSBC's China PMI dropping to 50.5 from 50.8 the previous month, while the official PMI published by the National Bureau of Statistics dipped to 51 in December from 51.4 in November.
Meanwhile, the PMI for China's steel sector, compiled by Beijing-based CFLP Steel Logistics Professional Committee, dropped to 47.7 in December from 49 in November.