Warnings are stacking up fast after China’s eye-popping steel rally. Fitch Ratings Inc said prices lifted in part by heightened speculation are destined to slump, while a bank in Singapore flagged the risk of a boom-bust cycle reminiscent of China’s equity market.
The rapid advance is not sustainable as mills are expected to bring back idled capacity, raising supply, Fitch said in a report released yesterday.
Price gains have been driven by a seasonal recovery in activity that has been exacerbated by increased speculation in the futures market, according to analyst Laura Zhai.
Steel prices have surged this year, with rebar up 47 percent, after policymakers in China talked up growth and added stimulus, helping to lift property prices and ignite a speculative frenzy. The gains have helped to restore mills’ profitability, boosting their incentive to increase output. Singapore-based Oversea-Chinese Banking Corp (OCBC) yesterday warned that there might be parallels between the sudden jump in steel trading and last year’s performance in equities, citing the potential for a boom-bust scenario.
“The rapid increase in Chinese steel prices so far this year is not sustainable, as it is largely due to a seasonal pickup in construction and elevated speculation in the steel futures market,” Fitch said. “With prices now surging, many of the suspended plants have resumed production.”
SURGING FUTURES
Futures for rebar extended gains in after-hours trade on Friday, rallying as much as 6.2 percent to 2,781 yuan (US$428.15) per metric tonne on the Shanghai Futures Exchange (SHFE), before trading 0.4 percent higher yesterday. The price of the product used to strengthen concrete advanced for an 11th week through Friday last week, adding 14 percent.
Steel output in the world’s largest supplier might see a further increase this month as more furnaces are fired up, according to Fitch. Production in March rose 2.9 percent to a record 70.65 million tonnes from a year earlier, according to figures from China’s National Bureau of Statistics.
To cool the spike in trading, the SHFE last week increased transaction fees, while the Dalian Commodity Exchange, which has an iron ore contract, raised margin requirements. The bourse in Dalian also tightened rules on what it called abnormal trading, which now includes frequent submission and withdrawal of orders.
REBAR HOLDINGS
The surge in prices, which also included hot-rolled coil, has unfolded against a backdrop of lower-than-usual inventories after mills cut output last year. China’s rebar inventory shrank 7.3 percent last week to 4.32 million tonnes as of Friday last week, according to Shanghai Steelhome Information Technology Co (上海鋼之家信息科技). This time last year, it was at 6.66 million tonnes.
Goldman Sachs Group Inc on Friday said that while rebar has been “leading the charge” in commodities this year, there is not yet a sustainable shift in the fundamentals. It also forecast losses in iron ore, used to make steel, seeing a drop to US$35 a tonne by year’s end. The benchmark price for 62 percent content ore delivered to Qingdao was at US$66.33 a dry tonne on Friday after sinking 5.9 percent, according to Metal Bulletin Ltd.
“The recent broad-based rally in commodity futures was the result of two factors, including increasing belief that China will continue to rely on infrastructure and property sectors to support the growth as well as ample liquidity,” OCBC said.
The risk of a correction cannot be ruled out, it warned.
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday said that its investment plan in Arizona is going according to schedule, following a local media report claiming that the company is planning to break ground on its third wafer fab in the US in June. In a statement, TSMC said it does not comment on market speculation, but that its investments in Arizona are proceeding well. TSMC is investing more than US$65 billion in Arizona to build three advanced wafer fabs. The first one has started production using the 4-nanometer (nm) process, while the second one would start mass production using the
A TAIWAN DEAL: TSMC is in early talks to fully operate Intel’s US semiconductor factories in a deal first raised by Trump officials, but Intel’s interest is uncertain Broadcom Inc has had informal talks with its advisers about making a bid for Intel Corp’s chip-design and marketing business, the Wall Street Journal reported, citing people familiar with the matter. Nothing has been submitted to Intel and Broadcom could decide not to pursue a deal, according to the Journal. Bloomberg News earlier reported that Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is in early talks for a controlling stake in Intel’s factories at the request of officials at US President Donald Trump’s administration, as the president looks to boost US manufacturing and maintain the country’s leadership in critical technologies. Trump officials raised the
‘SILVER LINING’: Although the news caused TSMC to fall on the local market, an analyst said that as tariffs are not set to go into effect until April, there is still time for negotiations US President Donald Trump on Tuesday said that he would likely impose tariffs on semiconductor, automobile and pharmaceutical imports of about 25 percent, with an announcement coming as soon as April 2 in a move that would represent a dramatic widening of the US leader’s trade war. “I probably will tell you that on April 2, but it’ll be in the neighborhood of 25 percent,” Trump told reporters at his Mar-a-Lago club when asked about his plan for auto tariffs. Asked about similar levies on pharmaceutical drugs and semiconductors, the president said that “it’ll be 25 percent and higher, and it’ll
CHIP BOOM: Revenue for the semiconductor industry is set to reach US$1 trillion by 2032, opening up opportunities for the chip pacakging and testing company, it said ASE Technology Holding Co (日月光投控), the world’s largest provider of outsourced semiconductor assembly and test (OSAT) services, yesterday launched a new advanced manufacturing facility in Penang, Malaysia, aiming to meet growing demand for emerging technologies such as generative artificial intelligence (AI) applications. The US$300 million facility is a critical step in expanding ASE’s global footprint, offering an alternative for customers from the US, Europe, Japan, South Korea and China to assemble and test chips outside of Taiwan amid efforts to diversify supply chains. The plant, the company’s fifth in Malaysia, is part of a strategic expansion plan that would more than triple
RSS