According to a few sources with China major steel mill, steel consumers would better make themselves prepared for the price surge for months to come, given the possible unexpected conclusion of a growth of over 70% for 2010 fiscal ore offers, though still dubious so far on the ore talk between world major steel mills and ore miners.
A steel industrial source said "In the final negotiations, the benchmark price of ore would most likely be settled close to the spot market. The same is true of the coke price. Steel producers may have to accept a gain of 70% to 80% for ore and 80% to 100% for coke based on the benchmark price of last year. We are apparently feeling that we are less empowered to get more saying in the talk for any discount as ore providers are diverting their materials to spot market. They told us they are not willing to sign annual contract and the longest contract term is three months."
Mr Zhang Shibao China Merchants Securities analyst thought that though the market has earlier eyed and digested the price growth of materials, they are still strong now. And the end of low season for steel consumption, the rally of steel futures prices, obvious inflation anticipation and expanding price gap between home and overseas markets are combining to trigger the steel price rise.
Mr Huhao analyst with Everbright Securities said "Steel mills, especially long product makers, are suffering losses now based on the calculation of current market price. The possibility of price rise is larger than price ebb and the possibility of fluctuating upward is larger than direct moving up taking comprehensive consideration of current high inventory, shortage in labor force after the Spring Festival and uncertainties in macro policy as well as Baosteel's price correction.”
Mr Sunfeng CEBM Group steel analyst believed that empirically, demand rally from March will ease pressure from high inventory and trigger an increase of crude steel output, but it will take long time to digest the record high stockpile.
He said that if the benchmark price substantially gains, steel mills will find it difficult to scale up steel price once for all through passing cost rise over to users and maintain profitability. Their profit will be squeezed.