Mainland steel prices go into free fall
Major producers meet in a bid to restore order as distributors dump inventories amid weaker demand and ample supply
Mainland steel prices have continued to fall despite efforts by the country's largest producers to restore market order after distributors dumped products to reduce inventories as supply growth exceeded demand.
Weaker global demand and China's ample supply have been responsible for a sharp drop in prices over the past two months, particularly for flat steel, which has been the subject of an aggressive export drive.
The situation prompted nine leading steelmakers, including the largest three - Baoshan Iron & Steel, Anshan Iron & Steel and Wuhan Iron & Steel - to hold a meeting at the weekend.
'Flat product prices have been falling since mid-March due to Beijing's macroeconomic tightening and a retreat of international prices,' said a joint statement from the nine firms.
'But since early June, prices have plunged sharply, severely affecting the normal market order and hurting the interests of customers, dealers and steel mills.'
The firms called for a cancellation of dealership rights of companies that sought to profit by 'maliciously manipulating prices' on electronic transactions. But analysts said the statement had not stopped prices from falling further.
'Prices have still been falling by 100 yuan to 150 yuan a tonne in the past couple of days,' said Tiger Huang Waihua of metallurgical consultancy Hatch.
Cold-rolled coil prices had fallen 24 per cent from the year's high of 7,450 yuan a tonne in the spring to 5,650 yuan yesterday, while hot-rolled coil prices had plummeted 43.5 per cent to about 3,500 yuan in the period, he said.
Cold-rolled steel is used in the production of vehicles and home appliances, while hot-rolled steel is used to make pipes and cargo containers.
'The steel mills have kept producing and pushing products to distributors who can't help but dump them before prices fall further,' said Daiwa Securities metals analyst Geoffrey Cheng Bik-hoi.
The central government has tightened lending to cool the steel-intensive property and construction sectors and has cancelled preferential tax policies that benefited steel exporters in a bid to rein in capacity expansion in the energy and resources-intensive steel industry.
However, new steel production capacity rose 37 per cent year on year last month and had increased 20 per cent this month, far outstripping a 10 per cent growth in demand, said Xu Zhongbo, the chief executive of Beijing Metal Consulting.
'Many small steel mills are losing money ... I think prices of long products [construction steel] have probably reached the bottom as they are already close to production costs, but the flat steel segment still has more room to fall,' he added.
Anshan Iron & Steel's spokesman said the drop in prices inevitably would lead to lower profits for the company but he said it had sought to ease the impact by increasing output of higher-priced products where competition was less keen.
