Prices for domestic steel in China are falling again due to overproduction following a brief respite with a five percent production cut in the fourth quarter, traders and industry officials said on Thursday.
They saw little hope for exports, despite increased efforts to ship out the surplus. Profit margins were thin, and there were fears of anti-dumping charges.
"The steel market is not good, prices have begun to fall again," said an industry official based in Beijing.
"Demand is strong, but incremental capacity is more than the rise in demand."
The sources saw little hope for an attempt by the top 10 steel mills, including Baosteel Group Corp, to limit China's 2006 iron ore imports, which should help prevent a further rise in the raw material price following a 71.5 percent jump this year.
The mills met in Shanghai last week to discuss ways to stabilise domestic steel prices and a strategy to fend off the price increases in talks with the world's top miners.
"There's such a big iron ore demand in China. It's difficult to limit it, that's the problem," said a senior iron ore trader at a Chinese company in Beijing.
While the miners, including Brazil's Companhia Vale do Rio Doce (CVRD), are asking for price hikes of 10-20 percent, Chinese mills are digging their heels to win price cuts of 5-10 percent.
Despite fears Chinese steel products might flood the world this year, customs data showed that the world's top producer and consumer of steel remained a net importer during the first 10 months.
Its exports stood at 17.15 million tonnes, up 69.1 percent year-on-year, while imports were greater at 21.93 million tonnes despite a year-on-year decline of 14.2 percent.
Referring to the imports, another industry official said: "For the whole year, we still have to import about 26 million tonnes, of which 90 percent is flat products."
"We cannot meet demand for high-quality products. Most of the production is at low end. It takes time to improve the quality," the official said.
The traders and industry officials hoped low prices would squeeze out obsolete mills in the near future, which would help stabilise prices and restrict the growth in the country's overall need for iron ore.
"I suggest monitoring how many tonnages will be closed in the next three to six months," said another iron ore trader.
"If they close, prices can stabilise. Otherwise, prices will remain soft, and the government might take some macro-measures."
China's central bank said on Wednesday pressure was mounting for China to adjust regulated prices for water, gas, electricity and transport and that the authorities would soon launch broader reforms of the way China prices resources.