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On Wednesday, China’s Cabinet vowed to strengthen its management of commodity supply and demand to curb ‘unreasonable’ price increases and prevent them being passed on to consumers, Reuters reported.
The Chinese attempt to rein in skyrocketing prices of steel/iron ore have caused a flutter in the ferrous market, analysts said, while noting that a few market participants expect the government to ease production curtailments in Tangshan and Handan in order to push down domestic steel prices.
Domestic steel prices in China slid 8–10 per cent in the past week.
Back home,
shares traded 4.33 per cent lower at Rs 1,112; state-run SAIL fell 4 per cent to Rs 123.70 and plugged 5.21 per cent to Rs 399 in early Mumbai trading.
Data showed September iron ore on the Dalian Commodity Exchange shed as much as 9 per cent to 1,102 yuan ($171.16) per tonne. Dalian’s most-active contract hit a record high of 1,358 yuan on May 12, Reuters reported On the Singapore Exchange, the most-traded June iron ore contract fell as much as 6.8 per cent to $192.15 a tonne. It touched a record peak of $233.75 on May 12.
“While the fundamentals remain supportive, China’s intent to rein in steel/iron ore prices might induce volatility in steel share prices in the near term. All in all, we remain positive on ferrous with Tata Steel and SAIL as our top picks; we recommend a ‘buy’ on dips,” said Edelweiss Securities.
So far, domestic prices are stable, with several players having announced hikes effective June and July.
“Domestic steel players are at a clear advantage as: there is no threat of imports; higher export realisation is likely to ward off near-term domestic demand woes; and lowest realisation is the world is likely to insulate the price moderation, if any. That said, recent endeavours in China to contain steel prices have dampened the sentiment and might result in near term stock price volatility,” Edelweiss said.
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