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Peking/Munichj (n-t), 12.05.2004 09:17

Steel Price Drops 17% as Slowdown Bid Pays Off

China's efforts to slow down its overheated economy have begun to pay off as the price of steel products for construction projects dropped 750 yuan (US$91) to around 3,440 yuan (US$419) per ton, or by about 17 percent, during the past six weeks.

A high-level official with the country's influential State Development and Reform Commission predicted the price will continue to fall in the short term, attributing the drastic drop to improved macro-economic regulation, tightened money supply and administrative intervention.

A stronger US dollar and price drops of raw materials for steel products on domestic and overseas markets are also partly responsible for the decrease, the official said.

According to the information gathered from major steel product markets in 22 cities, steel prices rose by at least 1,000 yuan (US$121) per ton in the past year ending early March.

The country's market demand for steel products began to fall in the first quarter, but output increased by 29.47 percent, leading to growth in inventories.

Yet, the current steel price is still 30 percent higher than a year ago.

By early March, steel products for construction rose at least 50 percent to 1,400 yuan (US$170), and rising steel prices have spurred investment in steel plants and prices of raw materials and energy during January and February.

Overall investment in the steel sector stood at 16.9 billion yuan (US$2 billion) in the two months, up 202 percent year- on-year, according to figures released by the commission.

The prices of iron ore, steel scrap and coke jumped by about 200 percent, 50 percent and 40 percent year-on-year, respectively.

The China Banking Regulatory Commission (CBRC), the country's banking watchdog, ordered the state-owned banks to respond to the government's macro-economic adjustments by rationally controlling the amount of loans for overheated sectors including iron and steel, aluminum, cement, real estate and automobile.

China's economy grew by 9.7 percent in the first quarter of the year, higher than the official target of 7 percent for 2004.

Bolstering China's economy is torrid bank lending, encouraged by interest rates at 25-year lows. The official cost of borrowing in China has remained unchanged since February 2002, when rates were reduced to the lowest levels since China embarked on its reform and opening-up drive more than two decades ago.

The CBRC also required commercial banks to set enough provisions for bad loans and maintain capital adequacy ratios up to standard as part of the efforts to earnestly ward off loan risks.


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