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Steel prices continue upward march Industrial trend  2/16/2009

Mr Zhang Tieshan said "Prices of steel products have increased continuously since November backed by the resilient demand from downstream industries.

He said that the average price of deformed steel soared from CNY 3,550 per tonne on October 17th 2008 to CNY 3,990 this week up by 12.4%. Prices of hot-rolled steel rose 10.6% during the same period from CNY 3,770 to CNY 4,170. Almost all the steel products reported a price hike over the past three months.

He added that "We have not figured out the entire demand of steel that comes from the stimulus package, but through a project by project estimation of steel demand, CNY 2 trillion will be used for mass construction and is expected to generate more than 20 million tonnes of demand."

Mr Zhu Limin analyst, Shanghai Securities said China 's steel mills have been running only to 60% to 70% of their full capacity in the past few months creating a balanced supply-to-demand ratio. He said that the CNY 4 trillion stimulus packages have also started to take effect. The package focusing on infrastructure projects like railways and highways will greatly boost the steel industry.

Mr Zhu said adding the additional CNY 100 billion of investment announced by the end of 2008, a record demand for steel is likely. He also attributed the steel price hike to the rising shipping costs, increasing raw material prices such as coke and shredded scrap.

But analysts said a price drop was in the perspective as soon as the annual iron ore price negotiations are finished. Mr Zhu said "Once the negotiators strike a deal, steel prices are expected to fall as the global recession is wiping out potential steel demand as well as excess credit. He said that this year 's prices would in all probability return to 2007 levels, representing a 40% to 50% price drop from last year.

According to analysts, an agreement on iron ore price reduction by 41% for 2009 between Russian steelmaker Magnitogorsk Iron and Steel Works and Eurasian Natural Resources Corporation of Kazakhstan in January has forced China to take a similar stance in the ongoing iron ore negotiation.

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