Baosteel Group Corp., China's largest steelmaker by output, has cut prices in response to low off-season sales in July and August and a cooling economy that has dented demand.

The cuts would apply to October and perhaps the entire fourth quarter, depending on demand. Steel prices cuts aren't unusual in China at that time of year, however, and the reductions might only be temporary.

As the industry leader, the Shanghai-based company often sets price trends for the sector. It said the move was its first price reduction this year. It raised prices in each of the previous three quarters.

Price cut amounts and percentages vary by the type of steel, but cold rolled steel prices were cut by 300 yuan per tonne, according to a price report released by the company on Tuesday.

The price of 1mm by 1,250 mm steel on Tuesday was 7,350 yuan per tonne.

Analysts said the company was seeking to retain flexibility in case demand rebounded.

Analysts at Guojin Securities said besides the seasonal and economic slowdowns, some steel factories had stopped running to improve air quality during the Beijing Olympics. Construction controls during the Olympics had weakened demand.

The analysts said they expected prices would rise as September and October are usually the peak season for steel sales.

Fourth-quarter price cuts are customary for major steel makers, so Baosteel's action was largely predictable, said Xu Xiangchun, senior consultant at a Beijing-based steel e-commerce company.

He said that market volume had shrunk and prices had fallen after steel prices peaked in early June. Steel prices fell 15 percent in July and August, compared with a 30-percent increase in the first half.

In July, amid soaring costs of iron ore and coke, output of rawsteel, pig iron and rolled steel stood at about 45 million tonnes, 42 million tonnes and 51 tonnes, down 2.7 percent, 2 percent and 4percent, respectively, from June, the International Iron and Steel Institute said.

Second-half economic conditions would exert further pressure on steel prices. The first half saw weak nationwide sales of housing, vehicles and home appliances – all major users of steel.

(Xinhua News Agency August 27, 2008)