Baosteel’s second consecutive price cut may increase market pessimism

Wednesday, 14 July 2010 16:36:09 (GMT+2)

On July 13, major Chinese steel producer Baosteel Group released its new prices for its steel products for August delivery. Accordingly, Baosteel has reduced transaction prices for most of its main steel products by margins in a range of RMB 200-800/mt ($30-118/mt).

This is the second consecutive price decrease announced by Baosteel. The steelmaker had made significant cuts to its steel prices for July delivery, offsetting the aggregate increase in prices in the first six months of this year.

According to market insiders, the further price reduction announced by Baosteel may exacerbate the pessimistic mood in the market. Meanwhile, the imbalance between supply and demand will likely result in further losses being incurred in the steel industry.

Meanwhile, on the raw materials side, it is reported that the price of ex-India fine ores (63.5 percent) has now fallen to $125/mt in the spot market, returning to the level in January. However, large and medium sized steel enterprises which have signed quarterly contracts with overseas miners will continue to buy at the contracted price, i.e., at $147/mt.

Under the dual pressure of high production costs and lower steel prices, Chinese domestic producers are increasingly likely to implement production cutbacks.

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