The recent steel rally seen in China is triggering some warning signs. Fitch Ratings recently announced prices for the metal increased, in part, due to rising speculation about an inevitable slump.
According to a report from Bloomberg, the sharp increase in steel prices isn’t sustainable, as mills are expected to fall back on idled capacity, thus increasing supply. The steel price rally has been driven, in part, due to a seasonal recovery that was further supported by increased speculation in the futures market.
“The rapid increase in Chinese steel prices so far this year is not sustainable, as it is largely due to a seasonal pick-up in construction and elevated speculation in the steel futures market,” the Fitch report said. “With prices now surging, many of the suspended plants have resumed production.”
Steel prices have risen dramatically in 2016 with rebar up 48% after Chinese policymakers touted growth and added stimulus, boosting property prices, according to Bloomberg. These gains have helped mills’ profitability bounce back.
Metals Round-Up
Meanwhile, aluminum prices have joined the broader metals rally, hitting a nine-month high this week. Our own Raul de Frutos wrote: “The data shows us that many signals suggest that this rally in commodity markets could continue. Aluminum prices are starting to pick up and so are other industrial metals. Watch oil prices, the U.S. dollar, commodities markets and the price performance of other industrial metals. Don’t get caught as prices find momentum. In this period it is extremely important to understand the big picture and have a defined purchasing strategy."