Steel product prices have touched record highs in the past three months due to concerted efforts by steelmakers and spot market traders to benefit from a construction upswing.
Spot traders initiated the hikes to gain from increased demand by the construction and infrastructure sectors for a wide range of steel products. This has sparked a chain reaction within the industry, prompting steelmakers to step up prices to grab part of the profits.
"The rise in steel prices was initiated by rising demand for steel in infrastructure projects nationwide, but now, steelmakers have started to take the lead in hiking prices further," said Cui Jingyi, an analyst with Guotai Junan Securities.
Wuhan Iron and Steel Co (WICSCO) is targeting another price hike ranging from 700 to 1,600 yuan per ton in September.
The nation's third-largest steel mill is reportedly planning to raise rates of hot-rolled coil and cold-rolled coil by 800 yuan per ton, up 21 percent and 18 percent, respectively, from current levels.
There has been a broad rally of major steel products in the spot market during the past two months. Hot-rolled coil gained 14.61 percent to 4,189 yuan by the end of July, while cold-rolled coil surged by 17.59 percent. Screw steel leaped by 18.77 percent to 4,348 yuan, according to mysteel.com statistics.
In the last three days, screw steel prices have shot up by nearly 400 yuan per ton, said Zhang Tieshan, an analyst with the steel information portal.
Wuhan Steel has not been the only one to adjust prices frequently. Hebei Iron & Steel Group has raised prices of steel plates by 350 to 400 yuan per ton. Last week, Shougang Group upped steel wire prices by 450 yuan per ton and rates of screw steel for delivery in August by 550 yuan.
"Rising steel prices signal high expectations by traders and steelmakers over future demand," said Cui. "Most of the price hikes are for steel used in construction," she added.
"Since April, major property developers have purchased substantial land across the nation, and once these projects start to develop, there will be a great demand for construction steel," said Zhang.
Additionally, many local governments have asked for major building projects to be completed before the nation's 60th anniversary in October. As such, the primary concern of builders is supply of material, not prices.
The price surge has helped many steelmakers to turn profitable. Many steel traders are also holding on to inventories and waiting for prices to climb in the coming months.
The nation's 71 medium- and large-sized steelmakers made an aggregate profit of 3.55 billion yuan in June, almost triple that of May's 1.262 billion yuan, data from China Iron & Steel Association this week revealed. This was in sharp contrast to massive losses earlier in the year.
Meanwhile, spot iron ore prices in China, the world's biggest consumer, surged to $110 a ton yesterday, mysteel.com said. This was 10 percent higher than the previous week's rate.
"Spot iron ore prices grew fast to approach $100 a ton recently from April's low of $58 per ton, indicating a recovery in demand outside China," said Zeng Hai, an industry analyst with Guolian Securities.
"The steel price surge will help steelmakers to report even better earnings numbers in July," said Zhang.
(China Daily August 7, 2009)
