China Steel Makers To Hike Prices in Q1

Jason Sandefur

China’s major steel mills are raising steel prices as much as 350 Yuan per metric ton. At least five major mills reportedly will raise prices starting in February 2009.
The increase is about 10% above the current price, translating to a 5% to 6% increase in fastener prices from China XL Screw purchasing director Jikyoon Park told FIN.
Steel prices in China have fallen to a level close to or below break-even point for steel producers, Park explained. “China’s steel prices have experienced the most violent price fluctuations this year with sharp and continuous increase in the first half, followed by a sharp decline in the second half,” Park stated.
Chinese mills have already cut production output by 20% to 30%, with some factories shutting down production completely. Despite this, China’s steel mills continue facing pressure to consolidate operations in order to reduce surplus capacity in China. Likewise, dealers have reduced inventory “significantly” and remain unwilling to carry extra inventory after severe losses over the past three months.
“They had to sell at a loss for those high-cost inventories purchased earlier due to the steep decline in steel prices,” Park told FIN.
Overall steel prices in China have been “very stable” during the past six to seven weeks, with a slight 150 Yuan per metric ton increase in the past 2 weeks. Park expressed confidence that steel prices will stabilize for a while at their current level once the hikes are implemented.
“We could see further weakness in price next year if global economy continues to falter, but I think price will be stabilized and go up gradually if we are on our way to recovery from the current economic mess.”
Park noted that China would continue to spend large sums of money to build infrastructure, which should consume much of the surplus inventory. In recent weeks Beijing announced a 4 trillion Yuan infrastructure stimulus package for its economy.
Bruce Darling, vice president of materials for Porteous Fastener Co., said he’s no longer seeing “a continuing to the price reduction we had been seeing” on steel in China.
“Others have told us that steel will go up after Chinese New Year so we are placing our next round of orders before the holiday,” Darling told FIN.
One of Darling’s sources in China told him steel mills have been reducing output in recent weeks.
“We believe steel price won’t go down much further as a general trend for the first quarter, that is to way, price will be stabilized for a while at current level,” according to the Chinese source.
The latest steel hikes could weaken China’s bargaining position at iron ore price negotiations with miners. But the mills are focusing on staying solvent in the short term.
“The point for them is they have to return to profitability before considering the negotiations,” Shanghai economist Judy Zhu told Dow Jones. “They’re now trying to consume iron ore inventories.” �2009 FastenerNews.com