Hu Jie is feeling the pinch of the recent slump in steel prices.

 

"The price drop is affecting our business," Hu, marketing manager of Van Shung Chong Holdings Limited, a steel trader and producer based in Shanghai, said on the sidelines of a steel forum yesterday.

 

"Since 2004, the steel market has been fluctuating violently," he said. "Now the trading price is even lower than the factory price."

 

After a month-long surge between April and May, China's steel prices plummeted suddenly.

 

In the last trading week of June, the prices of all types of steel products dropped between 100 to 200 yuan (US$12-24) a metric ton over the previous week in Shanghai, a barometer of the country's steel industry.

 

Within two weeks the rebar price declined from 4,200 yuan (US$525) to 3,900 yuan (US$487) per metric ton and the price of another construction material, wire rod, dropped from 4,500 yuan (US$562) to 3,800 yuan (US$475) per metric ton in Shanghai.

 

The price drop has permeated all corners of the country, including the northeast.

 

Wang Gang, chairman of a steel trader based in Shenyang, capital of Liaoning Province, told China Daily he had lost nearly 10 million yuan (US$1.25 million) in just a few days.

 

In the first half of the year, the steel industry recorded robust growth, hitting its peak in early June.

 

The beginning of a new year and upbeat anticipation of the market drove up prices, Huang Jin'gan, general director of the China Iron & Steel Association, said at the forum.

 

He also attributed the price fluctuation to the excessive number of steel traders, saying their unsteady sentiment unwittingly upset prices.

 

"The ratio of direct sale has been too low," Huang said. "And there are too many intermediaries."

 

He said the steel prices had grown too fast to be reasonable.

 

In February the Baosteel Group, China's largest steel maker, raised its steel prices for the second quarter by 10 percent. Soon other major steel producers followed suit.

 

In May, Baosteel and other producers further lifted the prices, which were higher than the market demand.

 

Soon the market began a backlash and traders found their sales drop as stock piled up.

 

In many cases trading prices were even lower than factory prices, which made things difficult for traders, forcing them to bargain with plants.

 

In the latter half of June several steel plants in the east summoned traders together and acknowledged that they had made the wrong decision on prices, Ma Zhongpu, a senior adviser from Beijing Lange Information Consultancy, told China Daily yesterday.

 

"The prices in the past few months grew so fast that they are set to bounce back," Ma said.

 

In fact market demand was dragged down by a property policy.

 

In May, the government dealt a heavy blow to its surging property market, stipulating that houses occupying less than 90 square meters should account for no less than 70 percent of a newly built apartment.

 

The regulation is regarded as an effective measure to slow down the country's property construction wave and as a result the demand for steel.

 

On the supply side, the widespread rumor of a lowered tax rebate on steel exports also exacerbated the price drop.

 

Although there has not yet been an official announcement, most steel players have assumed there will be a 3 percent cut to the export tax rebate, from 11 percent to 8 percent, making exports less profitable.

 

Many steel traders said the policy would take effect on August 1 and they would export less and sell more at home, which would add to domestic supply.

 

(China Daily July 7, 2006)