Falling metal prices fuel debate in China
By James Kynge in Nanchang
Published: April 1 2004 13:33 | Last Updated: April 1 2004 13:33
The price of a key Chinese steel product has slid into a sustained, month-long decline for the first time in more than a year, fuelling debate among industry executives and experts about whether the Chinese boom driving surging world metal prices has started to abate.
Li Qixiang, vice-chairman of the Nanchang Iron and Steel Co, told the Financial Times that prices of reinforced bars, a common product used in housing and infrastructure projects, have fallen from a high of Rmb4,200 in late February in eastern China to between Rmb3,900 and Rmb3,800 now.
"The main reason for the fall in price is that supply exceeds demand," said Mr Li. "Our most pessimistic forecast for the rest of this year is that the price of reinforced bars will fall to Rmb3,500. At that price, most steel companies in China cannot make money [with ore prices at current levels]."
Mr Li added that the price drop had been an important factor in convincing the board of Nanchang Iron and Steel to mothball plans to build another 1m tonnes of steel capacity this year, an expansion that would have raised the plant's total capacity to 3m tonnes of finished products.
"The banks are not willing to lend to us for this project. Before March they were willing but since then there has been an instruction from the central bank," Mr Li added.
Industry experts and bankers said the People's Bank of China, the central bank, has been discouraging commercial banks from supporting expansions into market segments that are clearly oversupplied, although it has not issued a blanket decree to stop all lending to steel companies.
Xu Zhongbo, head of Beijing Metal Consulting, estimated that some 40m to 50m tonnes of reinforced bars, or "screw-thread" steel, were produced last year, and sold mainly for use in housing and infrastructure projects. China's total steel production in 2003 was 220m tonnes - more than the US and Japan combined.
Mr Xu said the reason for declines in the price of some steel bars was flagging activity in some housing markets such as Beijing. "A lot of projects in Beijing have not got under way as scheduled and steel inventory is building up in the warehouses," Mr Xu said.
However, Mr Xu and other experts made a clear distinction between reinforced bars and some wire rods - the prices of which are also easing - and other more high-tech products which remain in chronic shortage in China. The prices of sheet steel and flat products used in consumer electronics and car manufacturing are still rising and may continue to climb for some time, analysts said.
Nevertheless, the news of easing reinforced bar prices will come as a welcome relief to Beijing, which has been gradually tightening monetary policy and issuing administrative orders to cool down China's property, steel, aluminium and cement industries. |
