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Baosteel lifts prices as overcapacity eases

  BEIJIJNG, Feb. 24 -- Baoshan Iron and Steel Co. Ltd. (SHA: 600019), China's top steelmaker, raised prices for key steel products by more than 10 percent for second-quarter delivery, in a sign that the country's steel prices have finally begun to recover from overcapacity pressures. 

   The prices are effective from Thursday, said the company.

  The move by Baosteel comes at a time when China's major steel mills are trying to persuade their term iron ore suppliers that tightening margins mean only minimal price hikes are acceptable for the year beginning in April. Baosteel's quarterly adjustments are seen as an industry benchmark.

   "Steel prices at the end of last year were below production costs for most steel mills, and they cannot afford to suffer more losses," said a China Iron and Steel Association official.

   "But demand for steel products has not changed and there is no reason to support the rise for long."

   Alarmed by poor margins and rising raw material costs, the government is trying to close the nation's smallest steel companies and consolidate the sector. The country's steel output rose by nearly 25 percent last year to 349 million tons.

   The association estimates January crude steel production at about 30.28 million tons, up 20.7 percent compared with January 2005.

   Other steelmakers including Wuhan Iron and Steel Co. Ltd. (SHA: 600005) and Angang New Steel Co. Ltd. (SZA: 000898; HK: 0347) have also recently lifted prices.

  Overcapacity and low domestic prices have turned the country into a net steel exporter in the last few months.

  Still, rising steel and spot iron ore prices are forcing some in domestic steel industry to accept that term ore prices must rise.

   "The industry's attitude is changing a bit to understand that term prices should rise as well," said an industry source. 

  (Shenzhen Daily)

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