Why China's steel price keeps climbing?
Last Updated(Beijing Time):2005-04-18 10:15
by Yang Guomin
Since Shanghai Bao Steel Group launched price for the first quarter of 2005 at early December 2004, a batch of famous steel factories followed suit and raised in great margin the price of steel sheet products for the first quarter of this year.
Around the Spring Festival of this year, China's steel plate products saw a new round of price hike. By February 4, the composite price of rolled steel was 5455 yuan a ton, 590 yuan a ton higher than last year's average, a growth rate of 12 percent. On February 22, the day when the news of international long term supply iron ore's price hike came out, all major steel companies declared to raise prices. On March 1, Bao Steel officially declared to accept the 71.5 percent price hike of international iron ore. All of a suddenly, the effect of the cost rise of raw material began to visualize in advance in the construction steel market.
According to the survey of the Ministry of Commerce, compared to the price on March 2, the average prices of construction rolled steel and steel plate rose 4.2 percent and 1.3 percent respectively on March 16, where, the prices of construction rolled steel products rose 100 - 150 yuan a ton, and steel plate products rose 50 - 100 yuan a ton.
Then why steel prices rise constantly recently? The price hike of iron ore is one of the major causes. This February, Japanese steel merchants unilaterally reached agreements with three international iron ore giants which control over 80 percent of the world's iron ore resources—Brazil's Companhia de Vale do Rio Doce, Australia's Rio Tinto Ltd and Australia's BHP Billiton, and fixed the growth rate of iron ore at 71.5 percent.
For all the strenuous negotiations of the Chinese steel industry circle represented by Bao Steel, they were finally forced to accept the record –high rise in the history of Asian iron ore price. Of the overall iron ore consumption amount of China, the world's largest steel producing country, 50 percent are imported, and the price rise will cost the steel industry 12 billion more this year on raw material, which marks a overall production cost rise of around 15 percent. Though the new imported iron ore price did not take effect until April 1, the anticipated effect of steel price rise brought about by it released in advance after all.
Another important cause for this round of steel price rise is the influence of steel price in the international market. In 2004, the global steel price kept climbing. The composite index of international steel price rose 42.4 percent, and though the composite average price of domestic steel market rose 24.1 percent over 2003, the price level was still 30 percent lower than that of the international market.
According to the analysis of experts, the quite wide gap between domestic and overseas prices last year and the driving force of the cost rise justified this year's appearance of complementary price rise in the domestic steel market. From that on, the domestic and overseas price gap will be narrowed gradually. But with the basic equilibrium of the global steel supply and demand, domestic steel price would not see further great rise.
Thirdly, the specific supply and demand condition fuelled this round of steel price rise. On March 30 of this year, the central government demanded a prompt abrogation of tax rebate measures on steel billet and steel ingot to restrict their export. In fact, for quite a while, influenced by the rumors about the calling off of the tax rebate on steel billet, plus the anticipated rise trend of international rolled steel and steel billet price, steel factories have all expanded export volume in succession. This January, the export of domestic steel billet increased 870.17 over the same period last year, while the import volume of steel billet kept dropping. In January, the nation's overall steel billet import volume decreased 77 percent year on year. In the first two months of this year, the export of domestic crude steel increased 7.15 times year on year and the export of rolled steel increased 2.05 times; and the export of pig steel increased 16.2 times. The surge of export caused the shortage of rolled steel and steel billet resources in the domestic market, which in turn resulted in the price rise in the steel market.
On the other hand, after the Spring Festival, more investment projects started working, which, along with the continuation of the situation became the direct causes of the steel price rise.
Accordingly, sustained by the strong force of the blooming demand and the continued rise of production cost, China's steel market price will remain at high levels for a while.
Source:CE.cn
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