China's steel makers are suffering from mounting costs, analysts said on Wednesday. But they are optimistic about the industry's performance for the current year.
One of the reasons for the cost rises is increasing iron ore shipping charges.
Analysts said now is the peak season for shipping dry and bulk cargo, and demand for ore and coal are on the rise worldwide. The result was overcrowding at major international harbors, which helped drive up shipping charges. The analysts forecast that global demand for dry and bulk cargo shipping will continue to be robust throughout the year.
Price hikes for iron ore, shored up by strong demand, also accounted for increases in cost for steel makers.
Expecting a price rise on international spot goods market, steel enterprises, with enough money in hand, will likely buy more ore to replenish stocks before a new fiscal year begins, according to analysts.
Meanwhile, the 2007 qualification criteria for iron ore importers have been released, raising thresholds. This has compelled those who do not qualify for the new standards to buy as much as possible before the new criteria come into force.
The price of domestically-produced iron ore is also rising. When prices of domestic ore start to come close to those on international markets, steel makers will prefer imports because of their higher quality. This has buoyed up prices of imported ores, according to analysts.
Steelmaking enterprises in Tangshan, north China's Hebei Province, have increased their share of imports in their total supplies from 20 percent to 30 percent to 40 percent to 50 percent.
Foreign iron ore arriving at Beilun Harbor in east China's Zhejiang Province is now priced 30 to 40 yuan/ton higher than the end of 2006. Crude iron powder from Brazil is valued at 750 yuan/ton (97 U.S. dollars/ton), up four U.S. dollars from the end of last year.
But analysts are optimistic about the steel sector's performance for the whole year. They believe cost rises, which are not sustainable, will be offset by improvement in efficiency of steel makers and price rises for steel products.
The analysts said increasing shipping charges will have less effect on large steel manufacturers, including Baosteel, Wuhan Iron and Steel and Capital Iron and Steel. The large companies have signed long-term shipping contracts, which ensure relative stability of shipping charges.
The analysts said oil price hikes and more vessels will limit shipping cost rises in the long term.
(Xinhua News Agency January 18, 2007)