BLBG: China’s Record Steel Output Signals Price Climb: Chart of Day
July 21 (Bloomberg) -- China’s steel prices will rise further, pushing up the metal’s price in global markets, as government public works spending spurs demand and mills charge more to cover raw material costs, according to UBS AG and Umetal Research Institute.
The CHART OF THE DAY tracks China’s steel output and benchmark prices for imported iron ore and hot-rolled sheets in China and the U.S. Steel production rose to a record 267 million metric tons in the first half. Prices for hot-rolled steel increased 21 percent since April 1, while iron ore for immediate delivery into China surged 43 percent, according to data compiled by Bloomberg.
“China continues to surprise on the upside,” UBS analysts led by Andrew Snowdowne said in a report. “Backed by government stimulus measures, the domestic market remains relatively attractive and rising domestic Chinese steel prices add upward support for global steel prices.”
Chinese mills including Baoshan Iron & Steel Co. are enjoying a demand revival because of the government’s $586 billion economic stimulus package, initiated in November. Shanghai-based Baoshan Steel, the largest Chinese mill, and Wuhan Iron & Steel Co. lifted August prices by as much as 14 percent. Capacity-utilization rates at the nation’s mills are greater than 90 percent, similar to 2007 levels, UBS said.
China’s dependence on imports of iron-ore, the main ingredient in steel, has increased to 70 percent of total demand, half-again more than the five-year average since 2003, according to Hu Yanping, an analyst at Beijing-based Umetal. The China Iron & Steel Association forecast 2009 domestic steel output at 460 million metric tons, about 16 percent less than projected production based on the latest data, Hu said.
China sought a 45 percent discount for contract iron-ore prices in talks with suppliers including Rio Tinto Group, more than the 33 percent offered by Rio. China detained four Rio executives, including an Australian national, on July 5, in a criminal probe related to iron-ore price talks, Australia’s foreign minister Stephen Smith said July 19.
(To save a copy of the chart, click here.)
--Helen Yuan Editors: Tan Hwee Ann, Lee J. Miller
To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net
