Baosteel's price adjustments for fourth quarter shipments were officially issued on August 20. Of the producer's product categories, three underwent price increases, the prices of six categories remained the same, while the remaining five categories saw price reductions. The price hikes in question involved semi finished steel products, electrical steel and tinplate. The products which did not see any changes included wire rod, Full Hard cold rolled, HD aluminium-zinc coated, color coated, plate and some pipe steel. As to the main steel products - HR, HR pickled, CR, HD & electro-galvanized, and some pipe steel - prices dropped overall.
As regards the price decreases per metric ton (basic price, value added tax excluded), these were as follows: HR down RMB 200, HR pickled down RMB 150-300, CR dropped RMB 400-500, HD galvanized fell by RMB 100-200, while electro-galvanized saw a decrease of RMB 300.
Currently, overall steel prices in China's local market have been on the upswing since late July. Baosteel's new price policy provides evidence of its cautious attitude towards the future market situation. Due to its basic concerns regarding predicted steel surpluses, booming steel exports and the possible implementation of further export restrictions by the government, Baosteel hopes to anticipate the market and avoid the same problems experienced in late 2005. At that time, the gap between its high prices and the depressed market caused great difficulties for the producer.
On the other hand, Baosteel' price reduction can be seen as a rational correction of excessively high prices. It is well known that Baosteel's product prices are on average higher than the prices of the equivalent products made by other steel mills in China - due mainly to the producer's repute and outstanding quality. Roughly, the generally acceptable price gap between Baosteel and the rest of the local market is RMB 300-400/mt ($40-53/mt) for HR and RMB 400-600/mt ($53-80/mt) for CR. In fact, after Baosteel's latest price adjustments, the practical price gaps in question are now around RMB 300/mt ($40) and RMB 500/mt ($66) for HR and CR respectively. It is clear from this that in recent months Baosteel's price was too high. After all, Baosteel' price had increased from April and was maintained for six months, whereas the price in the local market experienced a remarkable drop before the third quarter.
Apart from cost increases for materials and for shipping, the current upward tendency in steel prices can be partially accounted for by the present low inventory level, and by some steelmakers' output reductions for HR sheets of thin specifications. Stimulated by the positive market tendency, once the steel mills increase output a surplus situation could possibly occur.
Furthermore, the downward tendency in the EU's flat steel product price index is still continuing without any hint of a stop, despite measures by European steelmakers including reductions of output. The stress in such an overseas market will be increasingly transferred back to China. Baosteel is very sensitive to the world markets since it has branches all around the world. The first-hand information fed back from these branches supported Baosteel in its decision to cut prices.
Baosteel is not the price maker in its local market. However, its price policy has always had great reference value in China. Under such circumstances, it will be hard for the big local steelmakers to raise their steel prices for the last three months of the year even though the current market tendency is on the up.