China prices driven up by rising costs

Posted by tjdetai on July 13th, 2015

SHANGHAI, Jan 13 （Reuters） - China domestic steel prices rose modestly over the week as major steel mills raised February contract prices for their products, with the increases reflecting rising raw material costs rather than improving demand.

Rebar, widely used in the construction sector, rose to 4,600-4,610 yuan （6.6-8.1） per tonne in Shanghai on Thursday, up around 1 percent from last week, industry consultancy Mysteel said.

"Steel prices rose slightly this week, mainly driven up by higher costs, while demand is still weak as we can see inventories growing faster, especially for construction steel products," said a trader based in Shanghai.

Despite slower demand ahead of the Lunar New Year, China's larger steel mills have been keen to pass their rising raw material costs to their customers.

May steel rebar contracts SRBK1, the most active on the Shanghai Futures Exchange, closed on Thursday at 4,861 yuan per tonne, up 1 percent since last week.

Baoshan Iron & Steel Co Ltd （Baosteel） （600019.SS: Quote）, China's second-largest steel mill, set the tone for the domestic market by raising its major product prices by 100 yuan per tonne for February.

Wuhan Steel Iron and Steel Co Ltd （600005.SS: Quote） followed suit by raising product prices by as much as 200 yuan per tonne on Wednesday 。 Beijing Shougang Co Ltd （000959.SZ: Quote） also raised prices by 200 yuan per tonne.

Iron ore prices reached a nine-month high of 2-184 on Thursday with supplies from major producers in Australia and Brazil disrupted by bad weather.

While many in the industry are worried about the prospect of slowing Chinese demand this year as the government tries to curb inflation, one analyst said the first few months of the year were likely to be stronger than some were anticipating.

"Despite all the talk about interest rate rises and fears that the government is going to slow economic growth, I think we are going to see quite a bullish first quarter," said Sebastian Lewis, head of Asia research and consulting at Steel Business Briefing in Shanghai.

But he said there may be a danger that authorities could react to strong first-quarter demand by introducing even tougher measures later in the year.

Last year, prices and output reached a peak in April, but the market then suffered a long slump as traders and producers reacted to news that China would try to rein in the rampant real estate sector.

"The worry is that everyone gets too enthusiastic in the first quarter and the government clamps down and kills the market in the second quarter," Lewis said.

For more iron and steel price data, please click <STEEL/INFO> （=6.603 Yuan） （Editing by Chris Lewis）

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