Steel Could Enter A Bull Market By Year's End

Michael Teague  |

Steel was fast approaching bull market territory on Thursday as record-breaking production from China is proving to be insufficient to meet demand.

As the Chinese government attempts to curb excess spending that analysts fear could lead to a US-style housing bubble, the country’s production of steel rebar rose 14 percent to 113 million metric tons throughout the first 7 months of the year, a period that also saw stockpiles lower by 35 percent.

Despite warnings about a looming oversupply in a number of hard commodities markets such as iron ore, steel has largely benefitted from shrinking reserves. On the Shanghai futures exchange, rebar has advanced 10 percent since hitting a low in June, and the advance could continue on to 20 percent by the end of the year.

The news comes as demand for rebar could eventually be handicapped by government measures to cut back on lending, as well as put up stiffer barriers to getting approval for new home construction projects, both of which have resulted in increased new home prices throughout China, and significantly higher borrowing costs for builders.

All the same, there is less worry about demand for rebar than other metals, as the government is still placing a high priority on investing in infrastructure. Of the 14,000 miles of rail lines scheduled for construction by the end of 2015, for example, rebar will be an absolutely necessary element throughout much of it.

In any event, prices are set to climb as stockpiles continue to drop. Chinese rebar inventory dropped from 10.2 million tons last March to 6.6 million by Aug 30, and global steel prices could increase some 4 percent by 2014 as a result.

A number of steel stocks rose on Thursday's news, with gains for Synalloy Corp (SYNL) , Commercial Metals Co. (CMC) , and AK Steel Holding Corp (AKS) , among others.

[Image courtesy of Wikimedia Commons]

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