Four Large Steel Producers in China to Cut Output by 20% This Month

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Researched by Industrial Info Resources (Sugar Land, Texas)--Steel prices in the Chinese market dropped over 5% in the week prior to October 1. On September 29, 2008, Hebei Iron & Steel Group (Tangshan), Shougang Corporation (Beijing), Shandong Iron & Steel Group (Shandong province) and Anyang Iron & Steel Group (Anyang), four large steel producers in China, announced their plans to reduce their output by 20% in October this year. Insiders believed that because of the drop in demand, steel prices will continue falling. Falling prices in raw materials will also bring steel prices down.

In June of this year, steel prices in China were at an extremely high level because of the high cost of raw materials. The situation has been reversed at present. The price of major raw materials such as iron ore and coke dropped in a large margin. Stockpiles of iron ore remained high, while the transaction volume remained low. Freight from Brazil and western Australia to China also dropped significantly. Freight from Brazil to China dropped to $37.25 per ton on September 26 from $48.79 per ton in the previous week, a drop of 23.65%; freight from Australia to China dropped from $16.44 per ton to $11.48 per ton, a drop of 42.61%.

In these market conditions, the four steel producers proposed five countermeasures during their meeting in Handan, Hebei province, on September 29, 2008.

Reducing production output is their initial move. Based on the situation of each enterprise, the total reduction in output will be about 20%. Further reducing the procurement price of raw material, and reducing stockpiles of raw materials is the second countermeasure. The third measure is to enhance communication between top management of each company. The fourth move is to intensify restrictions on the sales behavior of steel producers and dealers. The final countermeasure is to properly adjust the product structure and resource flow and to avoid disordered competition between different regions.

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