Capacity addition not to dampen Chinese steel market – Analyst

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Jun 2009

According to Mr Chen Kexin an analyst with the production promotion center of China Commerce, big amounts of steel capacities coming on stream, may serve as a potent driver for steel price to rise. According to a report by China Metallurgical News, it's believed by some others that excessive output would weigh on market fundamentals and pull down the price consequently. There are multiple factors working on pricing of a commodity, and apart from supply and demand correlation, production cost is also important, the report suggests.
Since release of steel capacities is an impetus of demand for the raw materials such as iron ore, coke, fuel oil and logistics, which could drive up their prices, in other words, steel production costs. In such case as when the enterprises are see mounting costs, even oversupply cannot stop the pricing from advancing.
Mr Chen believed that Chinese steel sector is facing this at the moment. Costs for iron ore, coke, oil, other materials and the freights all swelled this year.
It is predicted that steel production cost would further rise with the world economy gradually bottoms out and in anticipation of currencies depreciation on the globe. Once the production cost is lifted, the enterprises will find it natural to raise up steel price, passing on cost to the downstream industries. So, it makes sense that capacity release is favorable for the steel market to improve.
In fact, quite a few steelmakers incl. Baosteel have declared higher prices for July in the recent period.

Source: Chinamining