Top Biz News

Steel industry feels pinch as prices down

By Yin Ping (China Daily)
Updated: 2006-07-07 08:19

In February the Baosteel Group, China's largest steel maker, raised its steel prices for the second quarter by 10 per cent. Soon other major steel producers followed suit.

In May, Baosteel and other producers further lifted the prices, which were higher than the market demand.

Soon the market began a backlash and traders found their sales drop as stock piled up.

In many cases trading prices were even lower than factory prices, which made things difficult for traders, forcing them to bargain with plants.

In the latter half of June several steel plants in the east summoned traders together and acknowledged that they had made the wrong decision on prices, Ma Zhongpu, a senior adviser from Beijing Lange Information Consultancy, told China Daily yesterday.

"The prices in the past few months grew so fast that they are set to bounce back," Ma said.

In fact market demand was dragged down by a property policy.

In May, the government dealt a heavy blow to its surging property market, stipulating that houses occupying less than 90 square metres should account for no less than 70 per cent of a newly built apartment.

The regulation is regarded as an effective measure to slow down the country's property construction wave and as a result the demand for steel.

On the supply side, the widespread rumour of a lowered tax rebate on steel exports also exacerbated the price drop.

Although there has not yet been an official announcement, most steel players have assumed there will be a 3 per cent cut to the export tax rebate, from 11 per cent to 8 per cent, making exports less profitable.

Many steel traders said the policy would take effect on August 1 and they would export less and sell more at home, which would add to domestic supply.