BEIJING (Commodity Online): Steel long futures have recovered in the Indian market owing to international developments and the weakness in US dollar. However, an examination of the fundamentals that are backing the metal would reveal the gap between price and the fundamentals it supposedly tracks.
In addition, the seasonal dip in the Chinese construction sector is likely to make the situation worse, especially with the dragon country suffering from an acute power shortage.
Nevertheless, the construction sector of the country has hitherto proved to be resilient, understood from the falling inventories of steel. The development that requires special attention is the bigger fall in steel long inventories as compared to that of flat products.
The production of steel products in China also touched a record high recently. The growth of Chinese construction sector during the month of May was strong enough, resulting in falling inventories of steel.
In addition, the American Iron and Steel Institute figures show that the import of steel of US commanded a 21 percent of the import market share. The figure remains to be strong in spite of the current dismal economic environment, but the capacity utilization is noted to have been below 75 percent, according to the report from Iron and Steel Institute.
In the coming days, the emphasis will sure to circle around the Chinese power crisis, the effect of Chinese rate tightening. In addition, the European debt crisis is also adding to the complexity of the situation. The US economy, on the other hand, is groping to find an exit from the current scenario.
However, the cost push of steel industry ensures to keep prices rather buoyant. The shortage in iron ore, especially with little mining from Karnataka, and rising coal prices compound the prices of steel.
The steel index with a 62 percent iron ore benchmark was witnessed falling around $1 towards $168.80 a tonne, the lowest since March 29. Meanwhile, Indian steel long futures were seen rising in the domestic market, recording a 130 rupees increment at the time of writing from the previous closing of Rs.29190 per tonne.
