CISA decodes steel rise, raps speculators

Workers load steel products at a logistics park in Yichang, Hubei province. [Photo/China Daily]

The China Iron and Steel Association or CISA has sought to calm the market that has been in turmoil of late due to runaway commodity prices.

In a statement on Thursday, CISA said steel products' price surge is not due to strong demand or inadequate supply but speculative trading by some unscrupulous market players.

It also said government policies on steel overcapacity reduction, elimination of inferior steel and environmental protection have been over-interpreted and even misunderstood by the market.

CISA sought to scotch rumors that supply of steel products has reduced sharply causing the prices to soar after the first half of the year. It dismissed talk that environmental protection measures may have led to a supply crunch.

The market has been in a tizzy since the last few weeks over the surge in prices of some steel products.

For instance, deformed steel bars traded at 4,050 yuan per metric ton on Friday, up 31 percent from 3,090 yuan at the beginning of this year.

Similarly, hot-rolled plates traded at 4,100 yuan per ton on Friday, up almost 10 percent from 3,730 yuan at the beginning of this year.

Even futures prices of the black metal have been trending up.

For instance, the Jan 15, 2018 contract for deformed steel bars closed at 3,850 yuan per ton on the Shanghai Futures Exchange on Friday. Although down 2.95 percent from Thursday's 4,209 yuan per ton, the trend has been upward.

On June 4, it traded at 2,935 yuan per ton, which means the price has since risen 31 percent.

That is not all. Shares in most listed steel companies have soared of late as well. For instance, Baosteel Co Ltd ended at 7.71 yuan on Friday on the Shanghai Stock Exchange, up 26.39 percent from 6.1 yuan on June 1.

To take stock of the alarming situation, CISA held a closed-door meeting of industry players on Wednesday.

Representatives of major steel companies, futures exchanges, futures traders, e-commerce platforms dedicated to steel products, industry information providers and consultants attended the meeting.

They agreed that speculative traders spread rumors about suspension of production and that steel companies were facing trouble due to strict environmental regulations.

They said speculators' witting or unwitting actions are leading to price swings, which could undermine the ongoing efforts to cut excess capacity in the steel industry.

Speculators appear to lack a thorough understanding of the environmental policies, industry people said at Wednesday's meeting, adding that the air pollution control plan is a measure to suspend and limit production of steel companies located in a specific region experiencing haze, and not across the country.

The output of the companies affected does not account for even 50 percent of the overall steel reduction, they said.

In addition, speculators do not appear to be aware of the environmental status of China's steel companies. Nor do they know that local governments implement environmental policies in a scientific manner, industry representatives said at the meeting.

"Actually, most steel enterprises in China, especially the big boys of the industry, are already compliant with the world's top standards for environmental protection," said Huang Dao, director of the technology environmental protection group of CISA. "Some companies such as Hesteel Group and China Baowu Steel Group are, in fact, world-class in this regard."

Environmental policies have only a limited effect on the supply of steel products because local governments do not impose production halts or any other restrictions on environmentally friendly enterprises, CISA said in its statement.

CISA's proactive approach to information sharing would help the market to be more rational than before, said Wang Guoqing, research director at the Lange Steel Information Research Center in Beijing. "Steel product prices rose too fast recently with steel billets gaining an average 100 yuan per day, increasing the risk of a crash later."