Leading Chinese steelmaker Baosteel will be freezing prices on its main sheet steel products for orders to be delivered in August.

The move, not entirely unexpected, comes as the Chinese industry is plagued with soft demand and high production levels, causing oversupply issues that won't be remedied overnight.

Policies to stabilise economic growth have been initiated, which should go some way towards alleviating Chinese steel demand on a domestic level. Between April and June of 2014, China's State Council has introduced at least 15 major policies to promote a more stable economy and some industry observers claim that China's economic data is starting to improve as a result.

GDP, for example, rose 7.4% year-on-year during H1 2014 with a 7.4% growth in Q1 2014 and a 7.5% rise in Q2.

It is estimated that Chinese government stimulus measures are having a positive effect on the steel industry through increased railway and urban infrastructure projects. But while steel demand is recovering on the domestic front, the international situation is the complete opposite with demand slowing. A slowdown in demand internationally is seen as a big stumbling block for Chinese steel exports.

CRU's international steel products index has dropped for three consecutive months and this has weakened the price advantage of domestic steel products. It is thought that Chinese steel exports will continue to be adversely affected by softening demand and declining international steel prices.

The forecast is bleak with the Chinese domestic steel market continuing to experience an oversupply situation caused by high production levels and what is being described as 'an unoptimistic exporting environment'.

Source: China Metals.