Baosteel cuts prices

BAOSHAN Iron & Steel Co has decided to cut prices on its major products in the fourth quarter, but analysts said the discounts should not have a major effect on earnings at China's largest mill.

According to quarterly adjustments announced on Monday, Baosteel reduced prices of hot-rolled steel products by 200 yuan (US$26.40) to 3,742 yuan a ton, and those of cold rolled products by at least 400 yuan to 4,696 yuan.

"Some investors may not have expected the price cut," said Essences Securities analyst Zhao Zhicheng. "We think Baosteel is forced to follow the market price trend, although its product prices could still trade at a premium against the overall market."

Baosteel left its third-quarter prices unchanged while some domestic competitors lowered theirs.

"The cuts will have a negative effect on Baosteel's earnings, but the impact won't be that big," Zhao said, adding that the price reduction could lower Baosteel's earnings forecast by 0.05 yuan per share.

The cut will also narrow the price gap between Shanghai-based Baosteel and its rivals. But Zhao said he can't forecast the price trend from the Baosteel move because it lags the market.

"Baosteel's price adjustment reflects the pressure of an increasing domestic supply of steel plates, the government's tightening export policies and easing of demand in the United States," said Orient Securities analyst Yang Baofeng.

China is encouraging mills to produce more flat products such as sheets and plates to cope with a glut of other types of steel used in construction. The government is also raising steel export hurdles to address its huge trade surplus, a move that will add to domestic market supply.