Steel Makers In China To Hike Prices

Jason Sandefur

China’s major steel mills are raising steel prices as much as 350 Yuan per metric ton, according to Dow Jones. At least five major mills reportedly will raise prices starting in February 2009.

Jikyoon Park, director of purchasing for XL Screw, told FastenerNews.com that the increase is about 10% above the current price, translating to a 5% to 6% increase in fastener prices from China.

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 FastenerNews.com.

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.

The latest steel hikes could weaken China’s bargaining position at iron ore price negotiations with miners. But the mills are focusing on the short-term economic demand to stay solvent.

“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