May 9, 2013 / 3:31 AM / 5 years ago

REFILE-UPDATE 2-China's Baosteel slashes June prices, first cut in 9 mths

* Last cut was in September, kept prices steady in May

* Underlines worries over demand outlook

* Steel supply glut may weigh on prices

By Ruby Lian and Fayen Wong

SHANGHAI, May 9 (Reuters) - China’s biggest listed steelmaker, Baoshan Iron & Steel, will cut its main steel product prices for June, its first reduction in nine months and underscoring demand worries amid a fragile economic recovery.

Pricing moves by the firm, known as Baosteel, usually set the tone for the wider steel sector in the country, with the cut coming as China’s steel demand falls short of expectations and as a supply glut worsens.

With high raw material prices already forcing some steelmakers into the red in recent months, mills could start to cut production, weighing on iron ore and coking coal prices and denting profits at global mining giants such as BHP Billiton and Rio Tinto .

Baosteel, which kept May prices steady after five straight months of hikes, will cut June prices of hot-rolled coil mainly for manufacturing by 180 yuan ($29) a tonne and cold-rolled coil, principally for autos and domestic appliances, by 150 yuan a tonne, the company said on Thursday.

“Baosteel has already been giving discounts of up to 200 yuan a tonne for May bookings even though it had announced that it would keep prices steady,” said Qiu Yuecheng, an analyst with steel trading platform Xiben New Line Co Ltd in Shanghai.

“The decision to cut June prices suggests it is having difficulties in getting orders.”

Baosteel, which competes with firms such as Wuhan Iron and Steel and Angang Steel, does not publish the latest prices for its products. Spot prices of hot-rolled coil are hovering at about 3,600 yuan a tonne, after shedding some 600 yuan in the past three months, data from Xiben showed.

Burdened with massive stockpiles of steel and slowing demand growth, some loss-making Chinese traders have lobbied mills for rebates on metal that has fallen in value since they bought it.


Demand for steel in China, the world’s largest consumer and producer of the metal, usually peaks during the second quarter before entering a lull from June through August as construction activity slows during the searing summer heat.

But despite signs of a weak demand pick-up and declining margins, China’s army of steel makers churned out more than 2 million tonnes a day in April. Average daily crude steel output struck a record 2.129 million tonnes late that month.

Analysts have warned that record steel output, slow sales and tight cash flow will weigh on steel and iron ore markets.

“Maybe Chinese mills will cut their production going forward. But cut to what extent? Cutting a bit will have no impact,” said Helen Lau, senior mining analyst at UOB-Kay Hian in Hong Kong.

The most active rebar futures for October delivery on the Shanghai Futures Exchange traded 0.63 percent lower at 3,623 yuan a tonne by the midday break. They earlier rose to the highest since April 26 at 3,674 yuan.

Benchmark 62 percent grade iron ore rebounded from near a five-month low to $130 a tonne on Wednesday. It hit $158.9, its highest for the year so far, on Feb. 20.

Shares in Baosteel, which fell 3.3 percent last quarter, were down 0.2 percent at midday.

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