Chinese real estate threatens construction steel market

China Business News reported that poor selling in China's real estate market is dragging down the investment growth and consequently affecting the whole industrial chain from upstream steel and other sectors to downstream industries.

According to the trader, the construction sites are slow paying back the money for buying steel products, often in 20 to 30 days after the delivery and they replace cash with commercial note.

Mr Zhu manager with Shunchao Steel a Shanghai based trading company said that the second grade rebar, most commonly used in construction, was posted below CNY 4300 per tonne at the year start, and then surged CNY 5600 per tonne by end May and early June.

He said that "Now the second grade is about CNY 5200 per tonne the lowest hit some CNY 5100 per tonne by end June and early July but the steelmakers' prices are not that low and we are often selling the products CNY 20 per tonne cheaper than we buy in."

Mr Zhu said the present pricing power remains in the steelmakers' hand, who only ensure a certain volume of the not high value added products; coupled with fine export situation, producers' ex-works price for the traders haven't been cut down.

On the other hand, the traders are faced with financial stress also because of slow payback of the real estate developers. They are thus worried and hope to sell more products, dragging down the construction steel price or even leading to losses.

According to another Shanghai based trader, despite further hike in steelmakers' ex-works price bolstered by lofty oil, power and transport costs, which has highlighted the price reversal with market price, the inventory remains slowly being eaten amid slack demand and the price is lacking of real support.