Asia Steel-China prices up, construction steel leads gains
* Prices at near 4-month high, more price gains seen
* China's May steel output at 11-month high
By Miyoung Kim
SEOUL, June 18 (Reuters) - Chinese spot steel prices rose 0.8 percent this week to a nearly four-month high, as a demand recovery helped absorb increased output and traders rebuilt stocks, betting more price gains would follow after Baosteel's price hikes last week.
Prices of China's benchmark hot-rolled coil rose to 3,515 yuan ($514.4) a tonne, versus 3,485 quoted last week in south and east China, data from Metal Bulletin showed.
For a graphic on Chinese spot steel prices, click: here
"Despite rising output, traders' inventory level remains stable, as actual consumption is recovering, especially led by the construction sector," said a Chinese steel trader in Seoul.
Driven by China's efforts to frontload a 4 trillion yuan stimulus package focused on infrastructure investment, annual growth of fixed-asset investment rose 32.9 percent in the first five months of this year, according to data released last week.
"We saw some fresh wire rod being bought by traders taken off from the trucks, that was brand new and no rust at all," CLSA analyst Scott Laprise said after visiting a steel trading market in Shanghai late last week.
"Traders told us they have become cautious these days, even though steel prices have come back recently. They wouldn't buy too much steel, as it is too risky."
Analysts estimate some 50 percent of steel product consumption in China is for construction and the recent demand recovery was mainly centred on construction materials such as wire rod, helped by the government's economic stimulus measures.
But steady growth in steel output in the absence of strong export demand is limiting the price upside, traders said.
China's crude steel production rose 7 percent in May from the previous month to an 11-month high of 46.46 million tonnes, just shy of a record 46.9 million tonnes it produced in June last year before cutting back sharply due to a spreading global financial crisis. [ID:nSHA328456]
"The rising Chinese output remains as a concern in market oversupply," Credit Suisse analysts said this week.
"Yet we believe the risk is partly mitigated by the sequentially improving domestic demand, underpinned by continued downstream improvement in construction, auto, home appliances and the recent pick up in construction machinery."
Aggressive price hikes by Baosteel (600019.SS), China's top steelmaker, last week for its products offered from July presents a strong outlook for summer trading and led smaller mills to follow suit, traders said.
By June 1, steel traders' inventory in China fell by 21 percent from its mid-March high, while inventory held by steel mills is also decreasing, according to BNP Paribas.
"Low steel inventory has been not only reported in long steel but also in flats, which have more industrial applications. This supports our view that the downstream sectors -- auto, white goods, etc -- have started ordering raw materials," it said in a report on Tuesday.
Reflecting the improving regional market outlook, South Korea's Hyundai Steel (004020.KS) raised this week its export prices of H-beam, used mainly in construction, by $50 a tonne for July and August shipments.
"Overseas demand has slightly picked up, helped by economic stimulus packages around the world, but it's hard to say it's definitely on a recovery track," said a trader. ($1=6.833 Yuan) (Reporting by Miyoung Kim; Editing by Michael Urquhart)
