China Steel Prices May Fall Later This Year, Association Says

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29 Apr 2008

Steel prices in China, the world's largest producer of the alloy, may fall this year as government measures to rein in lending may slow domestic demand, the China Iron and Steel Association said. Steel prices, which have risen 15 percent this year, would have "limited room for future increases'' and may even fall by a "small margin,'' the association said in a statement released today at a press conference in Beijing.
Baoshan Iron and Steel Co., China's biggest mill, and rivals need demand to hold as they pass on higher costs to automakers and builders. Baoshan Steel Chairman Xu Lejiang last month said market conditions will be more difficult this year as costs rise and the government reins in lending.
``Steel companies may record roughly the same level of profit this year as last year or slightly higher,'' said Qi Xiangdong, vice chairman of the association, at the conference. ``The uncertain factor is how the steel price will fluctuate.''
The higher steel prices aren't enough to cover gains in raw material costs, the association also said. Chinese steelmakers agreed to pay Brazil's Cia. Vale do Rio Doce as much as 71 percent more for annual iron ore contracts starting from April.
Chinese coking coal prices will climb 15 percent in the second quarter, after gaining 35 percent in the first three months of the year, producer Hidili Industry International Development Co. said April 18. Coking coal and iron ore are used in steelmaking.
Crude-steel demand may rise 11 percent this year, the association statement said.
China's central bank raised the proportion of deposits that lenders must set aside as reserves to a record 16 percent on April 16. The nation may raise the key one-year lending rate this year from 7.47 percent to cool inflation that is close to an 11-year high, according to 11 of 15 economists surveyed by Bloomberg News.

Source: Bloomberg