Average steel prices in China rose in February 2005 by 1.6 percent over the previous month, 1.1 percent over the same period last year, and 3.8 percent over the end of 2004. This was according to Beijing-based China Business Times Tuesday, quoting sources at the China Logistic Information Center (CLIC).

Compared to January, prices in February for bar sections, wire rods, medium plates and thin plates rose by 0.8 percent, 1.8 percent, 1.6 percent, 2.6 percent respectively.

In the first two months of this year, average prices for domestic steel products rose 4.5 percent over the same period last year, and were 3 percent higher than at the beginning of 2005.

The price hikes are likely to be a result of rising production costs. In addition, increased demands coupled with stock shortages have also pushed prices up.

Huge price fluctuations in 2004 caused manufacturers to keep inventories low as a safety precaution. As a result, stocks in the first two months of this year were lower as compared to the same period last year.

The CLIC estimates that prices will remain high for the first half of this year citing reasons including a growing domestic demand for steel products, rising production costs, a recovering world economy with a corresponding increased international demand for steel, and a devaluation of the US dollar.

In addition, the Chinese government is reportedly considering restricting steel production by shutting down hundreds of smaller factories with annual production capacities of below 800,000 tons.

Insiders also worry about the export and import markets, which have the biggest influence on the industry. Continuous price hikes in the country have narrowed the gap between domestic and international steel prices, and it is feared that exports, in particular, will weaken, slowing growth still further.

There are also signs that the government might cancel tax rebates on steel billets in the short term in a bid to adjust prices, and to alleviate the pressures of continuing industrial, energy and transportation development.

(China.org.cn by Tang Fuchun, March 24, 2005)