CHINESE IMPORT PRICES WELL ABOVE DOMESTIC VALUES

Beginning with the March issue of International Steel Review we will add China and Canada to the twelve countries already monitored. This gives a coverage of around 70 percent of global steel consumption.

The research has thrown up a number of issues that are important in understanding how the Chinese market operates. As is well known, China is not only the world’s largest steel producer; it is also the greatest steel importer. Most of this trade – in excess of 25 million tonnes last year – were strip mill products. The steelmakers expanded their output and shipments of flat rolled products by close to 18 percent in 2003. Nevertheless they were still unable to meet domestic demand. This fact is fundamental to the mechanics of Chinese pricing and why values for imported steel are higher than domestic figures.

In February this year, Chinese domestic values for hot rolled coil in the Guangzhou area are RMB 3,340-3,500 per tonne: a mean value in dollar terms would be $US413. However, the current price of imported hot rolled coil is $US510 per tonne c+f southern China. A similar pattern can be observed for cold reduced coil, where the February domestic value is $US488 but the import price is much higher at $US600 per tonne.

What causes such a disparity? For some of China’s domestic mills there are quality issues that affect prices. It is also the case that China must compete for imported material with other Asian countries where demand is currently buoyant. In addition, soaring ocean freight rates have made imports more expensive.

There are also issues to do with Chinese government concerns about an overheating economy. Although the authorities no longer attempt to exercise day-to-day control over the steel market, they still have ways of putting pressure on steel company executives. Keeping steel price increases in check could be seen as a means of stifling inflationary pressures in the wider economy.

The recent rises in Chinese mills’ selling prices appear insufficient to cover increases in their raw material costs – partly because the fixed RMB exchange rate means they are deriving no benefit from the weakness of the dollar. Baosteel, the leading flat rolled mill in the Shanghai region, has announced price rises for the second quarter of this year: but, at RMB 450 per tonne for hot rolled coil and RMB 300 per tonne for cold rolled coil, they are comparatively modest. This suggests more steel price hikes may be on the way.

Source: MEPS - International Steel Review