Chinese steel prices picked up again on Thursday as heavy flooding threatened to disrupt production in central and southern China. Demand is also being negatively impacted by the flooding however, suggesting the gains could be short-lived, Kallanish notes.

The October rebar contract on the Shanghai Futures Exchange closed up CNY 16/tonne on Thursday at CNY 2,387/t ($357/t). The contract had reached CNY 2,456/t in the early afternoon however as the extent of flooding (see separate article) became apparent. The same contract for hot rolled coil gained CNY 53/t to CNY 2,557/t.

The danger for a downward correction is higher the more the increase is driven by speculators. If the flooding in Hubei and other provinces really does force a major stoppage of production, then fundamentals may be impacted. More likely however, the floods will affect the market in a similar way to production cutbacks in Tangshan. Offer prices increase as talk of restrictions grows, but in the end supply remains more than sufficient and prices slide as speculators pull back.