Chinese steel exerts downward pressure on U.S. prices

China , Commodities , Europe , Metals , Steel , USA Oct 15, 2014 No Comments

SteelIn the U.S., current domestic hot-rolled steel prices are a whopping $209 per ton higher than the Chinese export price. As a result, Chinese steel exports have risen to record levels.

China’s exports of steel products rose to a fresh record last month, up sharply from a year earlier, as steelmakers burdened by China’s slowdown boosted cheap exports to make up for price cuts at home.

Steel exports were 8.52 million metric tons, up 73 percent from a year earlier and 9.8 percent from August, according to data from the country’s customs administration today. Outbound shipments in the first nine months of 2014 rose to 65.3 million tons, up 39 percent from a year ago, the data showed.

Chinese mills habitually use exports as a means to bolster sagging domestic sales, which has often threatened to swamp global supplies and led to trade friction with major importers such as Europe and the US. Chinese steel officials say they are trying to get mills to cut back on such exports.

“Steel mills looked to the overseas markets as an outlet for its products as the industry was mired in an overcapacity and weakening domestic demand,” customs agency spokesman Zheng Yuesheng told a briefing in Beijing yesterday.

China’s steel demand may see a quarterly fall in the fourth quarter as infrastructure and property spending slows and some steel traders face tighter financing, Zhang Hai, vice president at Hebei Iron & Steel Corp, China’s largest steelmaker, said last month.

Pressures arising from expanding inventories and sluggish domestic demand have made for cut-throat competition among China’s steel mills, resulting in meager profits. The margin for China’s large and medium-sized steel companies was 0.54% for the first seven months of 2014, China Iron & Steel Association (CISA) said.

Steel mills and traders have seen sales contract in September,” Macquarie Securities Ltd. analysts including Graeme Train and Angela Bi in Shanghai wrote in a Sept. 23 report. “There are now expectations of production cuts. This does not bode well for near-term raw material demand and prices.”

Local governments resist attempts to close unprofitable mills to sustain employment levels and tax revenues, prolonging the glut, said Vanessa Lau, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “Even after a few rather depressed years in terms of profitability, we still haven’t seen large-scale steel curtailments,” she said.

“This latest export index shows the extent to which the Chinese steel market is trying to export its way out of trouble,” said Paul Bartholomew, Platts managing editor for steel and raw materials. The new export orders index was recorded at 70.96, up 12.91 from September. “The steel sector is still battling with overcapacity, the property construction sector – which is a major user of steel – is still in the doldrums, so Chinese mills and traders are increasingly looking offshore for customers,” he said.

Some of those shipments may spark trade disputes that could reduce purchases. The U.S. started a probe Sept. 17 into alleged dumping of steel shelving units at below-cost prices, and the government set preliminary duties on some wire rod imports from China in July. The European Union began investigations in June and August and is considering whether to renew tariffs for five more years on wire rod. Thailand imposed duties on cold-rolled products in January while Brazil started a probe on some steel pipe products last year.

Tom Bird, the outgoing president of the European Ferrous Recovery & Recycling Federation (EFR), said that the billet, a section of steel used for rolling into bars, rods and sections, was being sold as square bar, which is a finished product, to circumvent higher tax rates on billet. He has suggested that importing authorities in the EU and the US who were “uncomfortable” with billet being treated as square bar, could be forced to act.

Speaking at Worldsteel Conference in Moscow, Chi Jingdong, Deputy Secretary General, CISA noted that the country is likely to produce 830 million tons of steel this year. The production levels are most likely to remain at these levels next year too. However, China plans to reduce the steel exports by means of regulatory measures introduced by the government to abolish tax rebates on exports of certain steel products. The Association also noted that steel overcapacity issues cannot be solved by boosted exports.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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