Chinese steelmakers intend to stabilize prices

Chinese steelmakers intend to stabilize prices

China Iron and Steel Association (CISA) announced this past Monday that a seminar entitled ‘Stabilizing China’s Steel Market’ would be held on Friday, October 21. CISA’s announcement spurred several steelmakers to take immediate action. A trading company affiliated with Baosteel declared that for large-scale purchases (i.e. more than 500 tons), buyers will have the option to return the products within one month. Such a move should mitigate customers’ fears that they might suffer losses if prices continue to decline. Some steelmakers have adopted the policy of using agents, whereby the steelmakers set the market prices in a move to curb the sharp price decline, and traders have no right to change the price. In order to alleviate the market pressure, some traders stopped selling once they got the notice from steelmakers. Price adjustments in the futures market (internet trading) were as follows: The closing price of contracted rebar for December delivery rose RMB 26/ton to RMB 2’844/ton ($351), while hot rolled sheet/coil rose RMB 37/ton to RMB 2’940/ton ($363). The spot market is in a downward trend, but the range of the price decreases is narrowing. The average price of 20mm HRB335 rebar in Shanghai, Beijing and Guangzhou fell RMB 7/ton to RMB 2’953/ton ($364). The decrease range was RMB 30/ton, smaller compared to that of Tuesday (October 18). The average price of 5.75mm x 1500 x C SS400 in Shanghai, Tianjing and Lecong was down RMB 30/ton to RMB 2’887/ton ($356). The timing of CISA’s could not be more appropriate. In 2004, influenced by macro-economic regulation, China’s steel market experienced a downslide. CISA held similar meeting at the end of May, 2004. At the meeting, market players analyzed the supply and demand relation as well as the international market condition. The participants urged steelmakers and traders to play their part to drive up the market. The meeting turned out to be effective, as the price index of major products hit new highs through March 2005. However, the situation in 2005 is quite different. Supply exceeds demand, and the recent price rebound in the international market is due to output reduction. In the short run, steelmakers have no choice but to cut their production in order to firm up market prices. In the long-term, mills relying on out-of date technology should be phased out and production should be cut in order to be more in line with demand. So while CISA’s intentions with its meeting might be noble, stopping the price decline just ends up protecting the uncompetitive enterprises, which is contradictory to the aim of the new steel industry development policy. SteelOrbis Shanghai