Anshan Iron and Steel Group, China's fourth-largest steelmaker, said it would keep prices of most of its products unchanged in June over May levels,.

Jiangsu Shagang Group said on Wednesday that it reduced steel prices for the construction sector, cutting rebar prices by as much as 6 percent.

"This is the first time that steel mills are talking of maintaining or cutting product prices since the Spring Festival (Feb 14). It also signals a market adjustment due to several factors," said Xu Xiangchun, a senior analyst at consultant firm Mysteel.

Significantly the price adjustments come at a time of a product glut and stagnant capital markets, even as the government curbs weigh heavily on the real estate sector.

The Shanghai Composite Index has declined nearly 12.8 percent since April, on concerns that the government will use monetary policy measures to contain inflation and avert asset bubbles.

Crude steel output in China rose by 27 percent to 55.4 million tons in April from a year ago.

Most of the big steel mills had raised product prices to offset the higher iron ore costs as a result of the shift to the quarterly pricing system.

The costlier ore had forced the steelmakers to transfer the resultant high production costs to consumers to offset the decline in margins.

The new pricing system which came into effect on April 1 saw the three big global miners getting more than $130 a ton for ore supplies under the April-June contracts, more than double last year's fixed price.

Average steel prices in China had peaked the most in April since August 2009, with Mysteel's composite steel price index rising by 15 percent over the previous month.

After the government released its macroeconomic policies to rein in property prices, steel prices began to decline.

Prices of construction steel products in 24 major cities dropped by 68 yuan per ton on Thursday, amid smooth trading volumes, according to Mysteel.com

The agency's composite steel price index, a major gauge of domestic steel prices, fell to 164 points on Thursday, down 2.8 percent from April.

China imported 55.3 million tons of iron ore in April, down 2.9 percent from a year ago.

Spot prices of iron ore with 63 percent ore content touched 1,270 yuan per ton including freight on Thursday, according to Mysteel.com

"Steel prices will, however, continue to rise this year, on higher demand for steel products and rising raw material costs," said Xu.

China Daily

(China Daily 05/14/2010 page15)