Baosteel price rises quell fears of market glut

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Baosteel, China’s largest steel company, said on Thursday that it would raise prices on its main products by more than 10 per cent, in a sign that the amount of steel likely to be made in China this year might not be as high as some have feared.

In the past year, signs of overproduction in China – and a subsequent glut of steel entering export markets – have been behind a large decline in prices in Asia. There have been concerns that the overproduction could have repercussions for the whole of the global steel industry by forcing prices downwards.

The Shanghai-based company said it would increase the price in the second quarter for cold-rolled steel by Rmb600 ($75) a tonne, a 15 per cent rise, and lift the cost to customers of hot-rolled steel by Rmb350, a jump of about 13 per cent.

The rapid expansion in production capacity in China forced Baosteel to cut prices twice last year. While the decision to increase prices indicates that some of the pressures from over-capacity have abated, some analysts said it might be only a short-lived reprieve.

According to Chen Dongming at Fitch, the ratings agency, a number of Chinese steel-makers were still expanding production because they feared government measures to close down small producers.

Both Guy Dollé, chief executive of Arcelor, and Lakshmi Mittal, chairman of Mittal Steel, told the Financial Times that they thought concerns about excess steel production from China had been overstated.

Mr Dollé said prices in Europe were rising, a sign that the risk of Asia affecting Europe in terms of prices might be lower than some think.

Speaking at the opening on Thursday of a steel plant in Belgium, Mr Dollé said that long-term investment was the best way to guarantee Arcelor’s future, writes Chris Smyth in Charleroi.

Mr Dollé said: “We must take advantage of installations like this one to show the difference between our model and others.”

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