China's Baosteel Cuts Jan Prices as Outlook Dims

China's Baoshan Iron and Steel Co Ltd (Baosteel) will cut its benchmark sales price for major hot-rolled steel products for January by 17% from its December price, trade sources said on Wednesday.

Baosteel, the listed unit of the country's largest steelmaker, will cut the hot-rolled steel price by 500 yuan (元) ($73.22) per ton, said three sources who received notification from the company.

Indications for cold-rolled products suggested there may be an even larger cut for that benchmark, they added.

Detailed price offers for January are expected to be released on Thursday, they said.

"Chinese steel makers all expect that the first quarter next year will be the toughest period," said analyst Henry Liu at Macquarie Bank. "There are too many uncertainties in the market, which is not likely to recover quickly."

Baosteel had lowered its offer prices three times during the fourth quarter this year, as the domestic demand outlook weakened.

Its hot-rolled steel price was at 元2,942 a ton for December, while cold-rolled steel was at 元3,526 per ton, industry sources have said. Both figures exclude a 17% value-added tax.

China Steel Corp, Taiwan's top steel maker, said on Wednesday it would cut domestic prices of steel products in the first quarter as it slashes output next year due to weakening demand during the global downturn.

Analysts and industry officials have said growth in steel demand in China is expected to slow in 2009 as the global financial crisis weighs on the real economy, including key industries such as automaking and construction.

In the latest attempt to cushion the impact of the financial turmoil, China's central bank on Wednesday slashed banks' benchmark one-year lending and deposit rates by a hefty 108 basis points, the fourth cut since mid-September.

China's steel demand is expected to begin bouncing back in the second quarter of 2009 on a surge in domestic infrastructure spending, UK-based consultants CRU International said on Wednesday.

By the end of next year, China, the world's biggest consumer of steel, could see demand rise 5 to 6%, said John Johnson, CRU's chief executive for China.

Johnson said global prices were unlikely to decline further because of production cuts by mills across the world.

"We have almost hit the bottom because producers have cut production and that will bring the market back into balance," he said.

He said global prices of hot-rolled steel have inched up after declining sharply. "The prices may have recovered only $20 per ton, but the key thing is that they are not falling anymore."

By Alfred Cang, Reuters.