Output cut is better than price reduction - Chinese steel mills - 02 Jun 10

Recently with the rapid decline of steel prices many steel mills decreased EXW prices and gave steel traders makeup actively. However some traders said that steel mills should reduce output rather than decrease EXW prices.

Statistics show that from May 17th to May 21st, dozens of Chinese steel mills chose to decrease their EXW prices of nearly all varieties of steel productions including prices of rebar, WRC, HR, CR, coated board, plate, strip, pipe etc. And the reduction was generally CNY 50 per tonne to CNY 100 per tonne, some even beyond CNY 300 per tonne. In addition some steel mills gave steel traders makeup of CNY 300 per tonne at most. This is the biggest decline of EXW prices since mid April.

Despite attempts to ease sales pressure of steel traders and attract them to order from steel mills by prices reduction, because of the much lower market prices the actual effectiveness is limited. Reporter learned that many steel traders are still cautious in business ordering as little as possible to avoid market risk.

A general manager of a steel trade company in Shanghai told reporter that although the reduction in EXW prices is not small there is still a great gap between EXW prices and spot market prices. For example, the EXW prices for May was CNY 4800 per tonne while the sale price in market is only CNY 4150 per tonne so traders still have a great loss.
Some steel trader said that the most effective direct and fundamental way for steel mills to stabilize prices is to cut output. Only the realization of supply and demand balance can eliminate the great gap between EXW prices and spot market prices. And when steel traders make profit their enthusiasm to order will be finally aroused.

In addition, the establishment of a scientific rational and standardized steel pricing mechanism is believed critical.

Jun 2, 2010 08:03
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