Chinese steel prices increase steadily in Q2, yet the future seems gloomy

Overall steel prices in China kept increasing rapidly throughout the first quarter of 2006 after a short termed sliding down in the beginning of the year. Nevertheless, 1st quarter's average price of main steel products is still 20.85 percent lower than that of 1st quarter 2005, as the average steel price at the end of 2005 was too low to recover in such a short time. In early April, the average steel price continued to ascend. Among all steel products, the flat products had the biggest margin of increase. Average price of such products reached RMB 5,905/ton, up 8.05 percent from the beginning of the year. The increases in section steel and construction steel product prices were relatively mild. Section steel prices increased 1.81 percent from the beginning of the year and reached RMB 3,309/ton, while construction steel prices increased 1.18 percent to RMB 3,142/ton. Steel prices are expected to keep increasing steadily through the 2nd quarter. First of all, the increase in costs will support the steel prices. On March 26, Chinese central government increased the prices of oil products by a large margin. On April 10, the railway transportation price also increased under the rule of the government. Although the iron ore negotiation has not been concluded yet, most people accept the possibility of an increase in the price. Second, the goods export situation is still improving. In the first four months, China's steel imports kept decreasing while exports moved towards the contrary. Currently, big steelmakers in China are satisfied with the sufficient level of orders from abroad and good sales prices. Third, worldwide steel prices are maintaining an upward trend, which is certainly beneficial for the Chinese market. The global steel supply is still tight due to the increasing demand. Therefore, major global steelmakers have increased their factory prices one after the other recently. Meanwhile, two negative factors, which require close attention, may also influence the local market in the near future. One is the oversupply in local markets, which still exists despite the enlargement in the demand. The more the prices increase, the further steel production capacity grows. Especially in February 2006, the average daily output of iron, crude steel and steel products reached 1.01 million tons, 1.05 million tons and 1.14 million tons respectively, all three breaking the records! The continuity of such a situation may cause Chinese steel market to re-face the problems which occurred last year. The other factor is the increase in restrictions by other countries against imports from China, due to its huge steel export. U.S' antidumping measures and India's new high tariff duty are two recent examples. The impact of such measures on Chinese steel market is becoming more remarkable day by day.