This year has been strong for ferrous market: Platts' Jeffries

The steel prices gained this year as the China capacity cut news came in.

According to Annalisa Jeffries, Associate Editorial Director, Metals Asia, Singapore, Platts it’s a double-edged sword in China, where on the one hand, money is being invested into infrastructure projects, which is going to drive steel demand and then on the other hand, it is stated that there is a need to cut back on steel production and maintain environmental protection issues. However, so far this year, has been a strong year for the ferrous market, says Jeffries.According to an EY report, world's top 30 steel firms' debt is at a record USD 150 billion. China's steel sector debt estimated at USD 500 billion. The  global excess capacity is at about 700 million tonnes. China will reduce steel capacity by 45 mt in 2016. Below is the transcript of Annalisa Jeffries’ interview to Manisha Gupta on CNBC-TV18. Q: What is your sense first of all on the EY report because that really seems quite bearish even as the steel prices have gone up, the kind of numbers that we are talking about from this report really do put pressure. A: Yes they do, and definitely, the sentiment out there is still always on the bearish side. It has been like that for the whole of this year. But if you talk to anybody in the steel industry and the iron ore industry, it is a surprise at how strong this year has really been. So if you look at the production of the Chinese steel and exports, exports are still around 9 percent out of China. And although we have seen a slight decrease, it is about 1.5 percent on steel production in China. The expectation was for a little bit more of that. So, going forward yes, we do see that there will be some consolidation happening. We have started to see that but overall where we are today, we know that the margins are still very good for the metals, prices are still strong. And talking to my colleagues on the desk, they are telling me that the inventories are very low at the steel mills. And Q4 is a wildcard because as you go into Q4, the colder weather means a cut back in production. And maybe I can add a little more detail in flavour about what is happening in terms of what the Chinese government is coming out with. We have had, in Tangshan region for example, they have come out with some stricter air pollution conditions, imposing cut backs of 30-50 percent for the rest of this month. We have got G20 in September, so we have got some cut backs in production expected then. So, there is a lot of things on the horizon, but for now, margins are good. Q: As the report also goes on to say on how many of these companies have been selling assets or have come out with bills to come out with this kind of a distress. So, while even the margins could be better, with the kind of capacity and with the kind of oversupplies we are dealing with in the global markets, how would you look at the kind of rise that we have seen in steel prices? A: You mean whether the rise is going to continue? In the short-term it is expected to be strong. I know that from talking to people in the iron ore segment as well. I see some strength there. You have got to think about the flooding that has been happening in the south of China. Recently, I am sure you saw some of it on the news and that is pretty good for construction. So, that is kind of a positive spin there that we would expect going forward. You have also got millions of dollars that the government is investing in infrastructure projects. So, it is kind of a double edged sword where on the one hand, you have got money that is being invested into infrastructure projects, which is going to drive steel demand and then on the other hand, you have got clearly stated we need to cut back on steel production and maintain environmental protection issues across China. So it is kind of two sides there.

It is a very hard one to call as to when things are going to dramatically change, but this year so far, has been a strong year for the ferrous market.