Steel rebar future contract at SHFE slips below CNY 3500 mark

Chinese steel futures dropped more than 2 percent to their lowest in almost nine months and iron ore swaps slid, pressured by soft demand in the world's biggest steel consumer whose economic recovery may be at risk of stalling. The most traded rebar contract for October delivery on the Shanghai Futures Exchange closed 2.1% lower at the day's low of CNY 3,496a tonne, its weakest since September 7th 2012. Steel demand slowed further in some parts of China due to heavy rains ahead of the seasonally weak consumption period that usually starts in June. Mills are just not getting enough orders so their inventories keep building up. At some point they would need to cut output sharply otherwise they would be facing some cash flow problems. China's excess steel capacity is depressing prices more now than in recent years because the economy is growing at a slower pace.

  Rising costs and weak demand harm local industry

One of China's leading commodities information portals has issued a stark warning on the state of the country's coal industry. Sublime China Information Co Ltd, which runs the commodities website,, said that the industry continues to suffer from dramatic falls in prices and weak demand, caused by domestic overcapacity and growing imports. Ms Liu Dongna an analyst at Sublime, said that since last year the industry's profits have been "seriously affected" by China's economic slowdown, excessive production capacity and increasing new energy applications. As coal prices face further drops this summer, partly because hydropower generation starts to increase in June and July, Ms Liu added that "There is no clear sign that the domestic coal industry can pick up." She added that "As the profits of coal companies continue to fall, it would be a wise choice to transform their development mode." And she warned that if the gloomy situation continues in the second half of the year, some medium-scale coal mines will go bankrupt.

  Guangzhou gross industrial output up by 11.2%

Guangzhou, the capital city of southern China's Guangdong province, saw its gross industrial output from enterprises with at least RMB 20 million revenues grow 11.2% YoY to RMB 504.75 billion in the first four months of this year. The growth rate was 0.2 percentage points higher than in the first quarter of this year. The city's three pillar industries, automobile industry, electronics manufacturing industry and petrochemical industry generated a total of RMB 234.2 billion in gross industry output for the four-month period, up 3% YoY. From January to April, Guangzhou's total retail sales of consumer goods grew 15.3% YoY to RMB 212.48 billion, while its fixed investments hit RMB 88.59 billion during the period, up 24.6% YoY. In the first quarter of this year, the combined profit of industrial enterprises in Guangzhou decreased 11% YoY to RMB 17.09 billion.

  30 Chinese steel companies have total liabilities of USD 124 billion

China's steel industry is in deep waters due to low steel prices and overcapacity, evident in its balance sheet. As of the end of the first quarter of 2013, China's top 30 publicly traded steel companies have total current liabilities amounting to CNY 759 billion (USD 124 billion), and their current assets are only CNY 530 billion (USD 87 billion). This figure was calculated by Sheng Zhicheng, the deputy secretary general of the China Steel Logistics Committee of the China Federation of Logistics & Purchasing and reported by Yicai, a top Chinese financial newspaper. According to Sheng, these firms' total liabilities increased by CNY 26.9 billion (USD 4.39 billion) compared to the same period last year. Current liability is a core component of a company's balance sheet. It can be understood to be the company's debts or financial obligations that are due within a calendar year and typically include short-term loans, bills payable, accounts payable, employee salaries, and taxes and dues payable. On the other side of the balance sheet is a company's current asset, which is the asset a company holds that can be converted to cash or used to pay current liabilities within 12 months.

  Chinese auto steel demand likely to rise

Chinese production and sales statistics is out of expectation since the beginning of this year, which is expected to continue rising. Therefore, auto steel demand has more room to grow as car ownership, auto manufacturing, research& development and maintenance increases. According to statistics from China Association of Automobile Manufacturers, China's auto production hit 1.8994 million units in April, down 8.91% month on month and 15.29% YoY; sales reached 1.8417 million units, down 9.50 percent from a month earlier and 13.38% compared to the same period last year. In the first four months of this year, auto production totaled 7.2965 million units, up 13.44% year on year; sales aggregated 7.2662 million units, up 13.23% from a year earlier.
In March, automobile production reached 2.0852 million units, an increase of 54.76% month on month and 10.88% year on year; sales hit 2.0351 million units, up 50.22% month on month and 10.69 percent year on year. In the first quarter of this year, auto production totaled 5.3971 million units, up 12.81% year on year; sales aggregated 5.4245 million units, an increase of 13.18% from a year earlier. In the first quarter of 2013, automobile production and sales made a better-than-expected performance, which layed a solid foundation for the whole year. It might greatly drive up demand of steel used for auto manufacturing, research& development. Moreover, the sizable number of car ownership ensures the demand of steel for auto maintenance. Auto steel dmeand has more room to grow as auto production and sales keep rising.
Steel products are the major raw materials of auto manufacturing. For example, steel products take up 72-88 percent of raw materials for producing one vehicle. Supposing that passenger car sales hit 15.4952 million units in 2012, steel demand was about 15.4952 million tonnes. To sum up, steel demand for the whole automobile industry might be 22.1501 million tonnes in 2012. Stable economic growth, relatively relax policy support and new energy car development will bolster up auto consumption in 2013. Domestic fixed assets and real estate investment will keep at a relatively high level despite of a slow growth, which might pull up commercial vehicle sales, heavy truck in particular. Moreover, the concept of new urbanization and Premier Li's reiteration of urbanization will boost consumption of automotive and urban bus.
It is expected that auto market might see a growth of 5 to 6% this year and some insider even forecast a growth of 8%. Auto industry might post a growth rate of 5.8% in 2013 on a stable growth and sales might total 20.50 million units. Domestic vehicle holdings hit 120.89 million units in the end of 2012 including 11.45 million units of three wheeled automobile and low speed truck, an increase of 14.3% compared to prior year. It is expected that China's vehicle holdings is likely to reach a record high of 135 million units in 2013, which hence props up demand of steel for auto maintenance.

  Volkswagen China sales up 18.4% in Jan to Apr

Volkswagen AG has announced that its passenger car sales in China increased 18.4% YoY to 1.02 million vehicles in the first four months of this year. The figure accounted for nearly one-third of the company's global sales and China still remains the largest single market for Volkswagen AG. From January to April, the sales of Audi brand vehicles amounted to 141,520 units, up 13.9% from a year earlier, while the sales of its Skoda brand vehicles hit 78,100 units in China, reflecting a YoY decrease of 1.9%. In the first four months of this year, the automaker delivered 11,832 units of Porsche in China, 25.1% more than it realized in the corresponding period of 2012.

  China Jan to April industrial profits up by 11.4%

National Bureau of Statistics said that China's industrial firms made total profits of CNY 1.61 trillion (USD 262.6 billion) in the first four months of 2013, up 11.4 percent from the same period a year ago. NBS said that in April, profits were CNY 436.7 billion up by 9.3% from the same month last year.