It is said from Roger Agnelli (Vale CEO) Wednesday that Brazil’s Vale, the world’s largest iron ore miner, isn’t in talks with Chinese steel mills on benchmark price of iron ore in 2009, but will continue to sell iron ore to China at prices concluded on interim contract.

Earlier, Rio Tinto reached an agreement with Japanese and Korean steel mills on a 33 percent price cut for iron ore and Vale also agreed on a 28 percent price cut for this year. Chinese steel enterprises rejected the above price cuts.

However, Vale is still respecting the interim price agreement it reached with Chinese steel mills, said Roger Agnelli.

Although steel prices in China dropped sharply in August, steel output is still on the rise. The domestic 77 main steel enterprises recorded an operating rate of 90.9 percent this month, compared with 87 percent in July.

According to the latest data from the China Iron and Steel Association, the country’s mid- and large-sized steel companies produced about 1.67 million tons of crude steel per day in the first ten days of August, refreshing the record again.

An analyst with Umetal noted that prices of imported iron ore reached the peak in early August, followed by a 15 percent fall responding to the drop of steel prices.

China’s major steel plants have recently raised their ex-factory prices for September, which foretells that they are still optimistic about the steel market in the following two months.

Market analysts note that China’s iron ore demand will continue rising along with the growing steel output.

According to figures from the country’s industry information provider, CHINA’S steel prices went through a roller-coaster ride of gains and declines within 20 days, with the biggest tumble at 20 percent.

Steel prices plunged from this year’s record high early this month, a culmination of price increases since late last month when big steel plants raised prices.

Prices of deformed steel bars fell from their highest level of 5,000 yuan (US$735) per ton to 4,200 yuan, a decline of 16 percent, and steel wires saw the biggest tumble of 20 percent from 4,850 yuan per ton to 3,900 yuan as of last Wednesday, according to MySteel.com, the industry information provider.

Xu Xiangchun, an analyst at Mysteel, said the price hike by major steel plants was the last straw weighing down on the steel market and triggering the price slump.

Traders who sold stockpiles to cash in on earlier price rises also helped drive the prices lower, Yao Hongchao, president of a Henan steel trader, told the China Securities Journal.

Other traders suffered huge losses as prices slumped, while steel producers had significantly reduced stockpiles when prices were high, said Zhang Ping, an analyst with Umetal, another industry information provider.

The price change was a technical adjustment at first, but it could be compounded by a change in macro policies, such as a slight adjustment in bank credit, and a bearish run of the stock market that may impact investor confidence. The steel price adjustment may continue for some time, said Zhang, as stockpiles continued to rise on lower trade and supply.

Xu said there were signs that steel prices had plunged too much and that they may still drop.

Zhang forecast prices of deformed steel bars could stabilize at 3,700 yuan per ton before falling.

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.