Chinese steel association criticizes speculators for hiking up prices

China Iron and Steel Industry Association criticized domestic speculators for hiking up steel prices by misinterpreting the nation’s policies. 

Such a market scenario will likely deter China’s progress in cutting overcapacity, the association said. 

China’s steel futures prices have posted continuous surges since June, because “some entities over-interpreted or even misread the policies on cracking down ‘ditiaogang’ and supervising steel production to prevent air pollutions,” the association said on its official website today. “Ditiaogang” refers to low-quality steel made from metal scraps.

The most traded rebar contract for December delivery peaked at 4,079 yuan (US$612) per ton on August 4, up 39 percent from June 2, when the surge started.

The association didn’t list the names for “several entities”, but said these entities aimed to profit from disseminating wrong information that steel supply would be heavily cut due to the government’s measures to prevent pollution.

Although the central government issued a plan in March to prevent air pollution by limiting production at highly-polluted steel and coal plants, “it doesn’t mean we will eliminate nearly half of the existing steel capacity as claimed by these speculators,” the association said.

Most of the member companies at the association have met the environmental protection rules, the association added. Meanwhile China had cleared up “ditiaogang” nationwide by June, so it won’t affect supply in the near future.

Before the announcement, analysts had been confused on the continuous price growth “as it wasn’t bolstered by the supply-demand relations,” Jiang Mingde, chief consultant at Yixinweiye Fund who conducts futures analysis, told Shanghai Daily.

China produced a record 419.8 million tons of crude steel over the first half year, up 4.6 percent from a year ago, said the World Steel Association.

“The slowdown in the domestic real estate and car making industries didn’t support the need for steel as their raw material,” Jiang said.

The profit of car makers over the first half added 11.7 percent from a year prior, slower than the average pace for domestic industrial producers at 22 percent year on year. Meanwhile investment into real estate grew 8.5 percent from January to June, 0.6 percentage points slower than in the first quarter, according to the National Bureau of Statistics.

The steel futures prices surge over the past months had been mainly due to improved investor sentiment rather than growing demand or shrinking supply, Jiang said.

The steel industry association said the irrational price growth would hurt the government’s efforts to cut overcapacity, as steel plants will be encouraged to produce more seeing the higher prices.

Steel prices eased after the association’s announcement, with the most traded rebar futures at the Shanghai Futures Exchange dropping 2.7 percent to 3,862 yuan (US$576) per ton today.