Although steel prices rise significantly the market risk is also increasing. Profit margin of Chinese steel industry is only 3% in the first two months 2010.

Mr Li Chuangxin president of China Metallurgical Industry Planning Research Institute said that the global steel market is recovering currently and China’s domestic steel output also sets a new record. Crude steel output in February was 1.8 million tonnes.

However the profit margin has not had such good performance. According to many insiders from steel mills that the profit margin could reach 7% to 8% before the financial crisis and even in 2008 when suffered with financial crisis it will be 4% to 5%, but it dropped to 2.9% in 2009.

Mr Li said “If steel price hike meet limitation while price of iron ore continue to go up steel enterprises will face more pressure.”

Mr Li Jianshe Marketing Manager of Magang said that if price of iron ore continue to rise there will be great risk in the market. The key point is whether downstream demand can bear the continuation of rising steel prices or not. Take Magang for example its prices for May are flat with that of April and will not have significant price hike recently. He said that “The major consideration is the capacity of downstream demand.”

However Mr Li predicted that with gradual exit of loose monetary policy, reduction of asset prices risk and the more stable basis of U.S. economy rebound dollar index will rise thus cause the drop in bulk raw material prices worldwide.

• [Editor:editor]