MySteel reported that most steel varieties have shown notable price uptrend at the beginning of the Chinese Lunar New Year but insiders warn that increasing uncertainties are casting shadow over the prospect of China's steel sector this year, such as spiking raw materials costs, heavy steel stock and output reduction etc.

Mr Xu Lejiang chairman of Baosteel Group cautioned at an internal meeting that the steel market might reverse the trend anytime. His concern has been echoed by leading steel consultancies in China.

A number of domestic steel traders are upbeat about steel price direction after the holiday in light of tight supply. A quarter of the traders polled by Xinhua News are looking for price rally for construction steel, while only 6% of them are holding opposite view.

They suggest that Beijing has announced to adopt tightening monetary policy from Q4 of 2007. In this case, the credit squeeze is unlikely to ease greatly in Q1. However, the capital demand of the steel market has expanded substantially as a result of escalating steel prices and rising output. Moreover, the market steel inventory is expected to add up notably in days to come. However, it remains unclear when and to what extent the market demand would revive post the holiday.

The cost pressure from iron ore, coking coal and other ingredients is set to affect steelmakers in the long term. Baosteel estimates that the profit margin would be further squeezed by spiking input costs and the market competition is to become increasingly furious.

An unprecedented severe blizzard has paralyzed the transport network in central south China before the New Year Holiday. The strained power supply has affected the production of some 50 steel mills in China at least. Market analysts predict that domestic steel capacity utilization is set to be checked at the beginning of this year.