Prices of steel products slump to two-year low

 

　　Lange Steel Information, a Beijing-based steel research institute, said Monday that its index for steel product prices fell to 159.8 Friday, below 160 for the first time this year and the lowest in the past two years.

 

　　"Demand remains slack. The authorities have approved some construction projects, mostly small-scale ones, in May but these projects will not reach full operation before the end of the third quarter," said Zhang Lin, an analyst with Lange Steel, predicting that steel products' prices will fall further amid fluctuations in July.

 

　　Though bank interest rates have been lowered since Friday, steel traders remain pessimistic over the demand outlook, Zhang told the Global Times. This means they will be less active in borrowing money, which in turn will bring few procurement orders and high stockpiles of steel products.

 

　　Chinese steel makers' profits fell by 67.8 percent year-on-year in the first quarter, according to the National Development and Reform Commission in May. And both Angang Steel and Lingyuan Iron & Steel Co issued profit warnings Friday for the first half of 2012, with the former expecting a net loss of some 1.98 billion yuan （$309 million） and the latter some 232 million yuan.

 

　　Angang said its huge loss was mainly brought by a 12 percent year-on-year decrease in steel products' prices, despite its efforts to cut operating costs.

 

　　"Compared with smaller steel makers, larger firms suffered more losses due to high operating costs and a less ideal product portfolio," said Xu Xiangchun, information director with mysteel.net, a steel information provider.

 

　　"Larger steel markers tend to have high-end steel plates as the majority of their product portfolio. However, the output of high-end steel plates has soared in the last two years, partly because the government has encouraged companies to produce it, bringing serious overcapacity and supply outpacing demand," Xu told the Global Times.

 

　　China's official manufacturing purchasing manager's index （PMI） fell to 50.2 in June, a seven-month low. Weak activity among manufacturers such as automakers, home appliance manufacturers and shipbuilders has seriously dampened upstream steel making in the second quarter, Zhang said.

 

　　The central bank and the Ministry of Finance recently eased monetary and fiscal policy and the latest CPI data indicates lower inflationary pressure. "All these transmit positive signals to the steel sector but it is too early to say how much buoyancy they can bring," Xu said.