For the past two months in the Chinese domestic market saw a decline of prices for steel products, in which quotes for hot-rolled and rebar fell to its lowest level since the autumn of 2010, and procurement in General has fallen almost to two-year low. However, in early June, the market sentiment has changed for the better.
The main reasons for the reduction in price of the Chinese car was the overproduction on the one hand and insufficient demand on the other. According to the national metallurgical Association CISA, the average volume of steel production in may was slightly over 2 million tons per day, i.e. production figures were close to record April levels. Thus, the volume of supply of steel products in the Chinese market remains relatively constant. Changes have occurred (or may occur soon) in respect of the demand.
First of all, in the second quarter increased sales to traditional Chinese goods in the United States and Japan. Due to this, the foreign trade balance deficit in February, March was again positive. However, in some sectors of the Chinese economy, the situation remains difficult. In particular, the great difficulties experienced by the manufacturers of household appliances. According to the estimates of governmental experts, GDP growth in the current year will amount to 7.5% ? the lowest since 1999.
The slowdown has forced the authorities to think about the possible support of the economy. In late may, Chinese and international media reports that the government is preparing a new stimulus package, similar to what was adopted in late 2008. Then, for the injections into the economy 4 trillion. yuan ($586 billion at the then exchange rate) China has managed to offset the decline in exports by increasing domestic consumption and thereby minimize the effects of the crisis that hit Western countries.
However, experts doubt that this time the Chinese government resort to such drastic measures. In 2008-2009 a large part allocated by the authorities of the money came into the economy in loans to leading state-owned banks. At the same time, funds are not always invested in profitable (even potentially) projects. The result has been a sharp rise in the debt of local authorities (up to about $1.7 trillion.) and speculative rise in the real estate market, which then had to extinguish with all sorts of restrictive measures.
Although Credit Suisse believes that this time the government can commit to stimulating domestic demand of about 2 trillion. yuan ($315 billion), most analysts predict a much smaller scale of these events. According to them, the funds will be dispersed across a large number of relatively small programmes that will allow better control their use, and provide "point" support for the industries that really need help. So, in mid-may it was announced the allocation of 26.5 billion yuan ($4.2 billion) to subsidize purchases of energy-saving appliances. However, in the construction industry, it is expected that most restrictions will remain in force.
Reports of a possible stimulus packages helped to slow the decline in Chinese steel market. However, analysts acknowledge that it will take several months before the measures taken by the authorities, will give a real effect. Therefore, in the foreseeable future to talk about a significant increase in prices for steel products in the country is not necessary.
While continue to decline and export prices in the Chinese car. Especially much cheaper lately cold-rolled coils, which in early June was sold at $660-675 per ton FOB. Hot car is valued above $600 per MT FOB, but analysts do not exclude that within the next two weeks it will fall below this mark. At least yuan in early June was the lowest in six months level against the dollar, which contributes to the continuation of the dumping policy.
 
Victor Tarnavsky
Rusmet.ru