It is quoted from Shan Shanghua, secretary-general of the China Iron & Steel Association Friday that steel prices in China started to plunge last week after rising for 17 straight weeks and such price fall was totally attributed to overcapacity.

Steel prices will go downward in the second half of this year if capacities continue to expand, added Shan.

By August 19, prices of the domestic mainstream steel products had slumped 550-950 yuan/ton or about 20 percent since last week.

However, some market analysts hold that in the usually slack season for steel industry in July and August, the price fall was just a normal adjustment from a sharp rise in the earlier period.

Steel prices are expected to halt dropping in September and steel enterprises’ performance in the second half may be better than that in the first half thanks to rising demand from the real estate sector, they point out.

During the period from April to early August, prices of main steel products in China soared nearly 30 percent over this year’s valley. An analyst with CBI China said that the government’s four-trillion-yuan stimulus package, which was launched in the fourth quarter of last year, began to boost steel demand from the second quarter this year. Therefore, steel enterprises’ stocks kept falling in the March-May period and steel prices started rising from mid-April.

“In the June-July period, the domestic steel output grew too fast, far surpassing the market demand,” Shan noted. Meanwhile, lots of intermediary traders largely added stocks on speculation that the price would rise higher.
“Now traders begin to sell out their stocks, but market doesn’t have so much demand”, Shan added.

Statistics from CISA show that stocks of steel products posted a month-on-month rise in July after decline for four consecutive months.

Currently, some steel products’ ex-factory prices are higher than spot prices, with the price gap as wide as 1,700 yuan/ton. A researcher with China’s leading steel producer Baosteel said that the steel demand from downstream industries are inadequate to support the high price, which will force steel enterprises to cut their prices.

Shan still held unoptimistic outlook for the domestic steel market in the following period, saying that steel prices can hardly go up in the second half if capacities maintain at such a high level.

With price rise of raw materials such as iron ore and coke, the steel production cost is also increasing to squeeze steel enterprises’ profits, Shan said, adding that large steel plants’ steel businesses still incurred losses in the first seven months and most of their profits came from investment return.

However, according to Ding, steel prices had surged for more than three months, so it’s normal for them to slip back. The steel industry will enter the traditional peak season in the September-October period and steel prices have a 20-30 percent rising room, he said.

The CBI analyst predicted that steel enterprises’ profits will climb in the second half as steel exports are likely to warm up.

A CBI survey showed that orders for steel products from overseas have increased prominently from June, with the quoted price also on a rise.

It is reported that Shougang Group, one of China’s major steel makers, acquires 90 percent equities of Shanxi Changzhi Iron & Steel Co., Ltd. (Changgang) for 500 million yuan, after getting an official reorganization agreement with each other.

Changgang now has an annual iron and steel production capacity of 3.6 million tons.

After the reorganization, the new company named Shougang Changzhi Iron and Steel (Group) Co., Ltd. will still be stated-owned one, with the remaining 10 percent equities owned by Changzhi City State-owned Assets Management Corporation.

Shougang has promised to invest more than 19 billion yuan in three years to optimize the product mix of the new company and expand its annual output to six million tons.

Since it removed from China’s capital city Beijing to the neighboring province (Hebei Province), Shougang has completed the building of an annual production capacity of 10 million tons in Caofeidian, Hebei.

According to a statement of China’s Supreme People’s Procuratorate late Tuesday, Prosecutors have approved the arrest of four employees of the Anglo-Australian mining giant Rio Tinto Ltd. on charges of trade secrets infringement and bribery.

Preliminary investigations have showed that the four employees, Stern Hu, Liu Caikui, Ge Minqiang and Wang Yong, had obtained commercial secrets of China’s steel and iron industry through improper means, which had violated the country’s Criminal Law, according to the statement.

Prosecution authorities also found evidence to prove that they were involved in commercial bribery.

Investigations have also revealed that there were suspects in China’s steel and iron enterprises who were providing commercial secrets for them.

The four were detained in Shanghai in early July on charges of stealing China’s state secrets.

Stern Hu, an Australian citizen of Chinese origin, was  general manager of the company’s Shanghai office and  was in charge of the iron ore business in China.

Hu was a long-standing employee of Rio Tinto and had lived in Shanghai for a number of years with his wife, who is also an Australian citizen.

It is said that the other three, who also worked in the Shanghai office, are Chinese employees of the company.

It is reported from China Daily on Wednesday that China’s imports of iron ore and crude oil hit record highs in July due to strong domestic demand.

The newspaper said despite that overall trade showed a steeper decline over the same period last year, imports are likely to grow and commodity prices expected to rise further. The country’s growing appetite for overseas goods will considerably benefit resource-rich regions such as Latin America, Africa and Australia.

Oil imports climbed by 18 percent to 19.6 million tonnes from a month ago, and iron ore also rose by 5 percent to 58.1 million tonnes. China spent a combined 13.8 billion U.S. dollars on the two commodities, 15 percent of the total imports.

It is said from the newspaper that China’s 4-trillion-yuan stimulus package has led to growing consumption of oil and iron at higher prices.

It is reported from China Metallurgical News that recently Q2 economic climate index has been released by www.ce.cn and National Bureau of Statistics of China posting at a lower level.

Mr Lixinchuang executive VP of CMIPRI said that the small and medium sized steel enterprises presented a better performance than the large ones this year.

Mr Li said these 10 industrial indices, like steel output, price index, export volume, sales revenue, tax incomes and profits etc entirely reflected a lower level in large and medium steel enterprises.

Mr Li revealed that the top 10 profitable enterprises were almost medium and small sized steel enterprises during January to May this year.

The CISA surveyed 71 large and medium sized steelmakers eyed an output reduction of 3% in half year period, but a 20% growth for the outsider enterprises.

It is reported from a domestic newspaper on Friday that the CISA (China Iron and Steel Association) is looking to sign long-term iron ore deals with suppliers outside Australia and Brazil as talks with major miners stay deadlocked.

CISA, China’s chief negotiator in the protracted price talks with Australia’s Rio Tinto and BHP Billiton and Vale of Brazil, is pushing for long-term agreements with miners in India, South Africa and Vietnam, the 21st Century Business Herald said, citing unidentified sources.

More than a month after the traditional June 30 deadline, no breakthrough in the benchmark price talks is yet evident, but smaller Australian miners have already pointed the way forward by striking more flexible agreements with their Chinese customers.

Atlas Mining Ltd said this week it had agreed prices that are based on a negotiated benchmark but can be adjusted should the spot market price rise above or below a certain level.

China, whose steel mills are struggling with overcapacity, has been holding out for a price cut of 40-45 percent, even though Japanese and Korean steelmakers have signed off on a 33 percent reduction.

It is said from CISA last week that it would continue to hold out for a “reasonable” price cut.

It is reported that China (its major ports), the world’s biggest iron ore buyer unloaded 35 percent more of the steelmaking ingredient last month from a year ago.

Ships unloaded 56.5 million metric tons of iron ore in July at major ports, the Ministry of Transport said on its Web site. The ministry didn’t provide comparative figures.

Crude steel output in China jumped to a record in the first half and cash iron ore prices have gained 33 percent this year as a $585 billion stimulus by the government improves building demand and auto purchases. The China Iron & Steel Association has blamed traders for the rising imports, which have hurt its ability to negotiate for lower contract prices.

“The increase in iron ore imports in July was partly boosted by small steelmakers buying ore at lower spot prices,” said Roslyn Ji, an analyst at Core Pacific-Yamaichi International Holding in Beijing.

Spot iron ore prices traded at $95.30 a ton yesterday according to the Steel Index. They averaged $83.436 a ton in July. Chinese steelmakers are stalled in talks to agree on benchmark contract prices with suppliers Rio Tinto Group, BHP Billiton Ltd. and Vale SA. The mills buy ore from mines in Australia, Brazil and India.

Record ImportsIron ore imports hit a record 57 million tons in April, according to general customs. Imports by traders accounted for 44 percent of purchases in the first half, the steel association said last week, compared with 30 percent a year earlier.

“In the second half, China may cut its reliance on imports because higher prices may prompt mills to use domestic ore,” said Umetal Research Institute analyst Du Wei.

Container volumes handled by major Chinese ports fell 3.8 percent to 10.1 million 20-foot standard containers, the transport ministry also said today. That’s the lowest level of decline this year.

“China container traffic, relying mostly on exports to the U.S. and Europe, still needs time for a full recovery,” said Core Pacific-Yamaichi’s Ji.

Former Federal Reserve Chairman Alan Greenspan said Aug. 2 that U.S. economic growth may resume at a rate faster than most economists forecast.

It is also said from the ministry that total cargo volumes at the ports rose 13 percent to 500 million metric tons in July from a year ago.

According to Luo Bingsheng, executive vice president of the association, China Iron and Steel Association (CISA) will push forward the iron ore import registration system, as an effort to curb the flow of imported iron ores to high polluting enterprises with backward production capacity.

The association’s latest data show that China imported 297 million tons of iron ores during the first half of 2009, up 29.3 percent from a year earlier. Those imported by trading companies reached 131 million tons, accounting for 43.96 percent of the total iron ore imports, higher than 29.83 percent during the first half of 2008.

China has 112 companies qualified for importing iron ores, but actually 152 companies were engaged in such business, according to the association.

According to statistics released by the National Bureau of Statistics, iron ores used in pig iron production increased 21.55 million tons during the year’s first half, while iron ore imports rose by 67.33 million tons. Obviously, the imports were highly above production demand, which led to large iron ore inventory in ports and high demurrage charges and ocean freight.

The large iron ore imports by trading companies has resulted in over imports and distorted the relationship between domestic iron ore supply and demand, and it was disturbing for the on-going iron ore price negotiation.

Luo said that China would strictly implement the iron ore import agency system. At the same time, it would adopt a uniform price in accordance with the negotiation results, to avoid the risk of speculation on different prices for one product.

Luo called on the government to encourage domestic iron ore exploitation, to ensure supply to the domestic market.

As for the highly concerned iron ore price negotiation, Luo said that it was still in progress.

Companhia Vale do Rio Doce, Brazil’s leading metals and mining company, said last Friday that it would not reach any price agreement with China before completion of price negotiation between China and Australia’s BHP Billiton Ltd. and Rio Tinto.

It is announced from BHP Billiton last week that it has reached an annual contract price with clients on 23 percent of its iron ores and a mixed contract price on 30 percent of its iron ores, leaving the rest 47 percent still under price negotiation.

It is reported on Monday that a Chinese senior official defended Beijing’s handling of the industrial spying case against an Australian executive for mining giant Rio Tinto, and urged Australia to respect China’s court processes.

Liu Jieyu, the deputy director of the Foreign Ministry’s international department, said the alleged actions of Chinese-born Australian Stern Hu would have been illegal in Australia too, and that critics should wait for the facts to come to light.

Hu, who heads mining giant Rio Tinto’s Chinese iron ore business, was detained with three Chinese co-workers in Shanghai on July 5 during contentious iron ore price talks. State media say they are accused of bribing Chinese steel company employees to get information on China’s negotiating stance.

Few other details have been made public, and the case has become politically charged. Australian government complaints that it is not getting enough direct information on the case from Beijing have fueled fears that Hu may not get a fair trial.

“The facts of the case would constitute a violation of Australian laws were the facts (to) happen here in Australia,” Liu told the Australian Broadcasting Corp. in an interview aired Monday. Liu, who gave the interview during a visit to Australia, did not offer any further details.

“We are dealing with a violation of the Chinese law and in all legal proceedings in different countries there are different provisions about what can be released at what point of time,” he said. “It is not up to me … to say what the law requires and what the law permits.”

He said Beijing expected foreign countries to respect China’s judicial system, adding that “the Chinese government respects the independence of the Australian judicial system, I think we would expect the same from other countries.”

At last, it is said that by dealing with this case, we are really establishing or we are really trying to establish a good environment for all companies in China – foreign companies operating in China and local Chinese companies.

It is reported on Monday that Chinese steel mills’ profit in July is expected to exceed 20 billion yuan (2.93 billion U.S. dollars), as the monthly growth of steel prices rose to an eight-year high.

Steel prices jumped in July, prompting profit in steel enterprises to expand, according to Xu Xiangchun, chief analyst with industry information provider MySteel.com.

The benchmark index of MySteel.com. for domestic steel prices rose 11.9 percent in the month.

Net profits in hot-rolled coil and cold-rolled coil are estimated to stand at 600 yuan and 1,400 yuan per tonne, as their prices gained by 376 yuan and 473 yuan per tonne in July, respectively, said Xu.

Full-year profit of China’s steel makers will reach 100 billion yuan if steel price remains stable in the second half, said Xu.

A revival in demand and the government’s continuous economic stimulus will help stabilize the steel prices, said Qi Xiangdong, vice secretary-general of the China Iron and Steel Association (CISA).

Profit in China’s 71 major steel enterprises totalled 3.55 billion yuan in June, expanding from May when they turned profitable after seven-month losses.

According to the CISA, The aggregate net profit of China’s major steel producers fell 43 percent to 84.6 billion yuan last year on weak demand amid the global financial crises.