Baosteel's Q4 prices to boost Chinese market

SteelOrbis Shanghai Baoshan Iron & Steel Co. Ltd's (Baosteel) 4th Quarter price announcement on August 22, 2006 has basically met the market expectations. The prices of some cold rolled, hot rolled and color-coated coils decreased RMB 200-400/mt ($25-50), while that of hot-dip galvanized coil, wide and medium plate, electric steel, and electrolytic tinning sheet increased RMB 100-200/mt ($13-25); that of semi finished steel increased RMB 100-1,500/mt ($13-188), and prices of the other products remained constant. Due to Baosteel's predominant position in China and its influence on South East Asia, the price policy always attracts attentions from home and abroad. Baosteel owns an absolute advantage in terms of product quality in China. However, with the consolidation of Anshan Iron & Steel (Angang) and Benxi Iron & Steel (Benxi Steel), merger of Jinan Iron & Steel (Jinan Steel) and Laiwu Iron & Steel (Laiwu Steel), expansion of Shagang Group Co. Ltd (Shagang), and entry of foreign-invested steel mills, Baosteel is now paying more attention to the competitors. At present, only Anshan-Benxi Steel and Wuhan Iron & Steel Co. (Wuhan Steel) have the strength to directly compete with Baosteel. We have learnt that Angang and Wuhan Steel would decrease their prices for September. Even so, the prices will still be at a relatively high level. In addition, sources reported that Taiwan based China Steel would hike its 4th Quarter prices. And leading steel mills in America and Europe will maintain the price increase policy. Starting from late-June, the fall in Chinese steel market lasted for nearly two months. Then, in the beginning of August, steel market showed an overall fluctuating trend. The market players have held different attitudes regarding the future market. They were looking forward to Baosteel's prices in order to determine the next step they should take. Now, the 4th Quarter quotations of Baosteel obviously helped the market to find the base for rising. In fact, prices of hot rolled thick coil began to climb in Shanghai market in the afternoon of August 22, which can be considered as traders' consent to Baosteel's prices. Nevertheless, it is necessary to point out that the price policy of Baosteel has a much greater psychological influence on market expectation, rather than a substantive influence. Most of Baosteel's products are not traded in the market; therefore, they have no direct influence on the market prices. The root cause that leads to the market price increase is the market situation, where the demand is exceeding the supply currently. The continuous decline in the market inventory indicates the sustainability of brisk demand in the Chinese steel market. With the recovery of steel consumption in the future, market prices may further go up.