Following China government’s crack down on realty industry, steel makers in the country will cut product prices for June.
Anshan Iron and Steel Group, China’s fourth-largest steelmaker, said it would keep prices of most of its products unchanged in June over May levels.
Jiangsu Shagang Group said it reduced steel prices for the construction sector, cutting rebar prices by as much as 6 percent.
This is the first time that steel mills are talking of maintaining or cutting product prices since the Spring Festival (Feb 14). It also signals a market adjustment due to several factors.
Significantly the price adjustments come at a time of a product glut and stagnant capital markets, even as the government curbs weigh heavily on the real estate sector.
The Shanghai Composite Index has declined nearly 12.8 percent since April, on concerns that the government will use monetary policy measures to contain inflation and avert asset bubbles.
Crude steel output in China rose by 27 percent to 55.4 million tons in April from a year ago.
Most of the big steel mills had raised product prices to offset the higher iron ore costs as a result of the shift to the quarterly pricing system.
The costlier ore had forced the steelmakers to transfer the resultant high production costs to consumers to offset the decline in margins.
The new pricing system which came into effect on April 1 saw the three big global miners getting more than $130 a tonne for ore supplies under the April-June contracts, more than double last year’s fixed price.
Meanwhile, in another development in India, car market leader Maruti Suzuki India Ltd is looking to tweak its steel procurement policy. The company said that by pairing its sourcing agreements with its suppliers and increasing the share of Indian steel supply, it hopes to make considerable savings this fiscal.
Currently, Maruti purchases 50 per cent of its steel from domestic sources, while certain higher grades are imported. This year it will increase the domestic sourcing by five per cent, since imported steel proves to be expensive by 5-10 per cent.
Among domestic suppliers, it sources 35 per cent from Tata Steel, while the rest is from other companies such as Bhushan Steel and Essar Steel.
With margins under pressure and little scope to raise prices due to the increasing competition in small cars, the company is also trying various other measures to keep costs low and get more efficient in its manufacturing.
It is planning to use low-cost automation for simple lifting and material handling jobs at the shop floor with robots instead of manpower. Further, it is also aiming to reduce wastage of raw materials by increasing the yield of the final products.