China steel sector not ready for recovery: HSBC

Firms require structural improvements to get out of the rut that the slowdown has put them in.

Seasonal demand should still uplift the embattled sector in the first half of 2012, but a full-blown rebound won't materialize due to current thin margins.

Here's more from HSBC:

Shanghai HRC spot prices have been stable around RMB4,200/t in the last two months, RMB200/t above the October 2011 trough, but still RMB700/t lower than the February 2011 peak, even after a 17% production cuts. Steel supply is fragmented, but local governments are under less pressure to execute the consolidation policy in the 12th Five-Year Plan (2011-15).

We believe the steel sector has bottomed, but a real recovery may not happen in 2012, as structural changes are required for margins to recover. In the short term, seasonal factors should lead to a gradual increase in steel price going into 2Q12.

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