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Baosteel's December average ex-factory price drop was nearly 1,000 yuan, the largest decline since 2007, but the price adjustment did not exceed market expectations. Analysts pointed out that although Baosteel has substantially reduced the sales price in November in September, the sales price still has a relatively large premium with the market price, which itself faces downward pressure on prices again. Coupled with the current sluggish demand in the domestic steel market, wait-and-see atmosphere is strong, and the transaction volume is light. For Baosteel, the reduction in the order quantity of downstream users leads directly to the high inventory, which triggers a deep reduction in the ex-factory price. After this downward adjustment, the price difference between Baosteel's December price and the market price tends to balance.
From Baosteel's product analysis of price adjustment, most of the products involved are market-competitive products, but board types such as shipboards, boiler plates, and oil-used steel pipes are also reflected, reflecting the weak demand for downstream industries such as shipbuilding. As Xu Lejiang, chairman of Baosteel Group, stated recently, due to the wide range of downstream users in the steel industry, it is more vulnerable to downstream demand. Orders for automobiles and home appliances have begun to shrink. Construction machinery, petroleum products and shipbuilding are still available, but they do not know. How long can it last?
Xu Lejiang also pointed out that the current steel industry is affected by the Chinese economy itself and the world economic environment. For the steel mill itself, the urgent need to consider is how to digest the high inventory of products and raw fuel.
It can be imagined that the sluggish demand for steel makes the steel industry relatively oversupply, and the steel mills have reduced their output, which has led to a reduction in demand for raw materials. The downstream pressure directly transmitted to the upstream raw materials led to significant diving of raw materials such as iron ore and coke. For steel manufacturers, since the raw materials used in the products put into the market were actually purchased before the price of raw materials fell, in the short term, the high inventory of raw fuel made it impossible for steel producers to benefit from falling prices of raw materials.
Analysts pointed out that in 2009, steel demand will slow down significantly, and steel prices will continue to operate weakly in the future. From the perspective of the correlation of fixed asset investment, the growth rate of crude steel consumption in 2009 is expected to be only 5.7%, which is far lower than the 13.8% in 2007. From the perspective of the downstream industry, real estate, automobiles, home appliances and shipbuilding are all facing downward pressure, and infrastructure and rural markets are still optimistic. The steel industry will fall in the steel price caused by the declining demand, which in turn will cause the price of raw materials to dive. The weak cycle of further falling steel prices will affect the supply and demand balance by affecting the entire industry. However, the macroeconomic weak operation will make Steel prices are under constant pressure to adjust. It is expected that the average annual price of steel products in 2009 will fall by 17% year-on-year, and international steel prices will also be adjusted.
Analysts predict that under the effect of Baotou’s Yangtse effect, other domestic steel mills will cut prices. Ma Tao, an analyst at Bohai Securities and Steel Industry, pointed out that Baosteel, as a vane of the domestic steel market, has introduced a price reduction policy at the current stage when steel companies are restricting production and insured prices. From an industry perspective, more steel companies will once again set off price cuts.
As a leading domestic steel company, Baosteel's products are high-end products with the lowest cost of raw materials and strong anti-risk capabilities. During the down cycle of the industry, Baosteel, as a leading steel company, is also expected to benefit from industry restructuring and integration, and it will have investment value in the long run. In the short term, after a sharp price reduction in November and December, Baosteel’s single-month earnings in November and December are not optimistic, and it is expected that the company will make a profit in the fourth quarter.
Baosteel cuts steel market price weakness
Since the middle of the year, the Chinese steel market has continued to slump. In the previous autumn season, the steel price in the spot market plummeted again, representing a decline of about 15% after the National Day holiday. In response to market trends, Baosteel yesterday announced a substantial reduction in product prices in December. Under the leadership of the sheep, other manufacturers will follow suit to lower prices, which indicates that the Chinese steel market has entered a weaker cycle.