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Baosteel Group, China's largest steel mill, is expected to lower its steel product prices in the fourth quarter to keep them in line with the market level.

 

The producer is likely to cut the factory prices of its key products by more than 5 percent for the fourth quarter compared with the third, industry sources said.

 

A Baosteel sales executive told China Daily she has not been informed of the price change, but said the fourth-quarter price would come out in a couple of weeks.

 

This will be the first time Baosteel has lowered its price for six months.

 

The steel mill raised its second-quarter prices by 10 percent and by 6 percent in the third quarter.

 

Experts say the price drop is bound to happen in the fourth quarter because Baosteel and other major mills cannot afford to maintain their high prices.

 

The market has fluctuated wildly this year from strong growth in May and mid-June to a continuous drop since late June.

 

Within a month, the prices of hot-rolled and cold-rolled plates, which are often used in vehicles, dropped by 600 yuan (US$75) to 700 yuan (US$87.5) per ton, according to Beijing Lange Information Co, a leading steel consultancy.

 

Wires and rebars, widely used in construction, also saw a drop of around 400 yuan (US$50) per ton.

 

But despite the market price drop, the country's major steel mills would not lower their factory prices, which are unreasonably higher than the market level.

 

As a result, large mills are losing orders to small- and medium-sized steel mills, many of which are attempting to win traders by subsidizing the loss.

 

This has sparked disorder in the market, damaging trader confidence and, in turn, the market price.

 

"Baosteel's price drop comes at the right time, as it will soon stabilize the market and regain market confidence," said Ma Zhongpu, a senior consultant from Lange.

 

Some steel mills have already taken the plunge.

 

Benxi Iron & Steel Co, based in Northeast China's Liaoning Province, announced on Tuesday that it would lower the price of its hot-rolled plates by 700 yuan (US$87.5) per ton and that of cold-rolled plates by 500 yuan (US$62.5) per ton, both representing a decrease of over 10 percent from a month ago.

 

This will spark a flurry of price cuts from China's leading steelmakers, Ma said.

 

"Only when these major steel plants lower their prices to keep in line with the market can the market revive," Ma said.

 

Five steel mills in the north and some in the south have set a good example.

 

Tangshan Iron & Steel Co in North China's Hebei Province, one of the country's top five, took the lead in negotiating with traders and lowering its prices.

 

Other steel mills followed suit soon after to keep their prices in line with the market.

 

Construction material rebars and wires soon reported a stable price and even rebounded a little in the north and south. In Tianjin, a municipality in the northern China, prices of steel plates regained 100 yuan (US$12.5) per ton.

 

In the first six months of this year, China produced nearly 200 million tons of crude steel, growing 18.26 percent year-on-year and 13 percent with the exclusion of exports.The 13 percent production growth is basically in line with the growth rate of the country's steel consumption, Ma said.

 

(China Daily August 17, 2006)