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Steel traders release stockpile to reap profits from high prices Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000080&sid=amsEC1xwSiR0&refer=asiahttp://quote.bloomberg.com/apps/news?pid=10000080&sid=amsEC1xwSiR0&refer=asia
China Steel Prices May Fall as Government Curbs Investment
April 1 (Bloomberg) -- China's steel prices, some of which have fallen as much as 8 percent in the past six weeks, may slide further this year after the government said it will curb investment in roads and bridges, traders and companies said.
Prices of threaded steel rod, used to reinforce concrete, fell to 3,800 yuan ($459.1) a metric ton in Shanghai last month from a high of 4,132 yuan a ton in mid February, according to the Shanghai Steel Electronic Exchange.
Threaded steel stockpiles in Shanghai have doubled this year on expectations of continuing demand after investments in factories and bridges surged 27 percent last year. In an attempt to slow this spending and curb inflation, China's government last month said it will limit lending for industrial projects.
``Prices were dragged down by high stockpiles built up by traders who expected prices to move higher,'' said Zhou Weixin, a purchase department director at Shanghai No. 4 Construction Co., a unit of Shanghai Construction Group, China's fourth largest state-owned construction company by sales. ``The government plans to curb infrastructure investments, which I believe will curb steel demand this year,'' he said.
Stockpiles for threaded steel stand at about 400,000 tons in Shanghai, compared with the usual 200,000 tons in the second half of last year, reported the steel exchange, which provides online trading of the rod.
`Lack of Buyers'
``Steel traders have started to trim their stockpiles as demand wasn't as good as they expected,'' said Fan Fengying, a sales manager with Shanghai Baoqiao Steel Co., a steel trader, which sold 300,000 tons of threaded rods last year. The company is now selling about 200 tons of steel a day compared with 3,000 tons a day in the same period a year-earlier, she said.
``Construction firms don't have money to buy steel at current price levels,'' Fan said, ``I don't think the steel price will advance further due to the lack of buyers.''
Still, Shanghai No.4 said it may benefit from lower prices as it specializes in housing construction, which will grow. Shanghai Construction Co., the publicly traded parent of Shanghai No.4, reported net income in 2003 of 183.8 million yuan and net sales of 10.56 billion yuan.
As steel prices soared last year, Shanghai No. 4's Zhou said his company posted consecutive losses each month since June as it was unable to pass the increased costs onto customers. The company uses 100,000 tons of construction steel each year.
Premier Wen Jiabao said last month China plans to sell 110 billion yuan of special bonds this year - about a fifth less than last year -- to finance roads, bridges and other public works projects.
Jobs Programs
The government said it will spend more on agricultural, social welfare and jobs programs. Wen wants to close a widening wealth gap between China's cities and the countryside, where about two-thirds of the 1.3 billion population live.
China's steel prices may decline in the second half of this year with expansion of steel production capacity and a likely slowdown in demand, said Liu Jianyun, an analyst with the steel exchange.
The country's steel production capacity in 2003 reached 230 million tons, which may rise 44 percent to 330 million tons in 2005 as steel plants are built and other mills are upgraded, said Liu.
``The balance between supply and demand will be broken with more new production lines coming on stream,'' said Liu. ``Of the new capacity, some 30 percent will be used to expand steel plants, but the rest will rely on market appetite,'' he said.
China's steel demand may reach 280 million tons this year, up 13 percent from 2003, China Metallurgical News reported last month, citing Wu Xichun, Chairman of China's Iron & Steel Association.
Steel plates used for building ships dropped to 4,750 yuan a ton at the end of last month from 4,800 yuan at the beginning last month, said the Shanghai Baoshan Steel Exchange.
Largest Shipbuilder
Shanghai Waigaoqiao Shipbuilding Co., China's largest shipbuilder, said shortages of iron ore and coal, used to make the metal, indicate raw material prices may rise and support steel prices.
``Steel prices moved down recently because some steel traders released their stockpiles to reap profits,'' said Zhang Yuwei, an official with Shanghai Waigaoqiao's procurement division. The company will delay construction of a ship from March 23 to mid April as its Korean supplier failed to deliver a steel plate order, Zhang said.
``Steel prices won't ease much unless the short supply of iron ore is relieved,'' he said. Iron ore prices in China rose to 1,100 yuan from 800 yuan a ton in the third quarter of last year, according to Wang Yiping, deputy director with Metallurgical Mines' Association of China, in an interview last week. China produces 300 million tons of iron ore a year, which meets half of the country's demand, he said.
To contact the reporter for this story:
Helen Yuan in Shanghai, or hyuan@bloomberg.net
To contact the editors of this story:
Peter Langan at plangan@bloomberg.net
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