China Steel Corp (中鋼), the nation’s biggest steelmaker, yesterday announced it would lower domestic steel prices for December by an average NT$967 (US$29), or 4.45 percent, from the October-November levels, in tandem with recent price cuts by its Chinese counterparts.
This would be the Kaohsiung-based company’s first price cut after raising prices three times since July. But both the company and analysts say prices are bound to rise again next year because of higher prices of raw materials and strong Chinese demand.
“Because of China’s domestic stimulus package, the market is facing oversupply and rising inventory pressures, and steel mills are being forced to cut prices,” China Steel said in a statement yesterday.
“Since prices in China began to bottom out last week, the market is obviously becoming optimistic about future price trends,” it said.
Baoshan Iron & Steel Co (寶鋼), China’s largest steelmaker, said on Oct. 10 that it would cut prices for steel products by 250 yuan (US$36.50) to 500 yuan per tonne, or between 9 percent and 13 percent, for next month from this month’s levels, the Chinese-language site Umetal.com (聯合金屬網) reported on Monday last week.
“The oversupply situation in China is likely to persist in the short term and steelmakers there still need time to digest inventories,” Angela Chuang (莊慧君), an analyst at Capital Securities Corp (群益證券), said by telephone yesterday.
With the Chinese government likely to take new measures to reduce excess capacity, steel prices will gain support, Chuang said.
“The good thing is steel prices in China have recently shown signs of stabilization and prospects for this sector are good through next year as re-stocking demand is likely to appear early next year,” she said.
China Steel will make no changes to bar and wire rod prices, but will lower plate prices by an average NT$951 a tonne and cut hot-rolled and cold-rolled steel by NT$1,481 and NT$1,000 a tonne respectively.
The company will also reduce prices for electro-galvanized sheets and electrical sheets by NT$1,000 per tonne each and hot-dipped, zinc-galvanized sheets by NT$956.
China Steel offers domestic customers “retroactive rebates” on previous period purchases if the company announces that it will cut prices for the succeeding period.
In other words, the company’s customers will now receive discounts on their October-November purchases, but Chuang said this would have a limited impact on the company’s balance sheet this year.
“The company will continue to make a profit this year, at about NT$8 billion to NT$10 billion by our conservative estimate,” she said.
The forecast is compares with Citigroup’s estimate of NT$8.68 billion for this year and with a net profit of NT$24.03 billion China Steel made last year and NT$51.26 billion in 2007. The company posted a loss of NT$6.45 billion in the first half of the year.
Before the price cuts were announced, China Steel shares gained 0.5 percent to close at NT$30.35 yesterday, outperforming a decline of 0.67 percent on the TAIEX index.
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