Asia Steel-China prices keep falling; bottom in sight

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Sep 2009

Chinese spot steel prices dropped nearly 4 percent in their sixth consecutive weekly fall, triggered by large price cuts from the country's major producers, as oversupply weighed on the domestic physical market. Chinese steel mills, which contributed 40 percent of the world's output this year, may face rising cost pressures in coming months, since domestic iron ore prices are rebounding partly due to miners deliberately holding stocks.
Chinese steel mills are set to unofficially launch iron ore price talks for the year starting April 2010 next month, when two international industry conferences are held in northern China.
"The market situation is very tricky now," said a Shanghai-based trader with an international trading house.
"The correlation between Chinese steel and iron ore prices had been solid for several months, but now they are in contrary directions. The steel mills will definitely do something to prevent steel prices from falling further, to either reduce their production or raise factory prices."
Mounting cost pressures could trigger production cuts among major Chinese steel mills, company officials and analysts have said. Chinese steel output marked a record 52.3 million tonnes in August, and is likely to see a similar figure in September.
Massive physical supplies have driven down steel prices in China since a 10-month peak in early August. Benchmark hot-rolled coil prices fell to 3,477.5 yuan a tonne in the week ended on Friday, from 3,617.5 yuan the previous week quoted in south and east China, data from Metal Bulletin showed.
An official at Hebei Iron and Steel, China's second-biggest steel mill, said prices have been below average but saw little room for further downside.
Prices of benchmark hot-rolled coil in China headed south to around the 3,200-yuan level last October and in April, data from Metal Bulletin showed.
"Prices are likely to rebound in the near future as steel mills will not allow the downtrend to continue. The industry is facing risks of losses now," said an analyst with a state-owned steel mill, who declined to be identified as he was not authorised to speak to the media officially.
China's daily crude steel output in mid-September fell slightly to 1.655 million tonnes from 1.67 million in the first 10 days this month, industry consultancy Umetal said on Monday, citing China Iron and Steel Association data.
China's Ministry of Industry and Information Technology said on Monday that Chinese physical steel prices would stablise after more than a month of correction since early August.
The ministry, however, said it was hard to be precise about the time and the size of a price recovery due to uncertainties in the market including capacity expansion, oversupply and an unclear export outlook.

Source: Reuters