NEW DIRECTION FOR STEEL EXPORT PRICES FROM CHINA – MEPS

NEW DIRECTION FOR STEEL EXPORT PRICES FROM CHINA – MEPS

Chinese steel producers increased their export offer prices for most steel mill products in January, compared to those issued for the previous month. The proposed advances ranged from zero to 15.5 percent, depending upon the form of supply. The most significant upturns were proposed for exports of cold rolled and zinc coated coils – with figures of in excess of 15 and 8 percent, respectively, announced.

Export offer prices, in January, for the remaining items are scheduled to rise by significantly smaller percentages than those proposed for cold rolled and coated coils. These products include hot rolled coil and plate, plus wire rod and reinforcing bars. To date, structural sections and merchant bar export figures are stable at their previous values.

The Chinese proposals are not guaranteed to be accepted by customers around the world. However, the latest figures do show a change in export selling policies by the industry, compared with those in the previous twelve month period, when contra strategies were prevalent.

It is interesting to speculate about the reason for the latest change in the Chinese steel export strategy. Over the last twelve months, export offer prices steadily decreased by 42 percent for flat and 33 percent for long products.

Clearly, the policy of price cutting did not improve the financial situation at the mills in China. In fact, the opposite was the result. The industry, as a whole, is now in crisis – with major losses recorded across the industry. The existing policy had to change.

The one of slashing steel prices in the domestic and export markets did not generate significant extra business for the local steel mills, in 2015. In fact, the country’s steel output fell in the year. Granted, the mills gained approximately 20 million tonnes of exports, in 2015, compared to the previous year but at a significant cost to total revenue – considering the price reduction per tonne of sales.

If the previous policy was designed to drive a significant part of the foreign competition out of business, then it can be said that it was only partially successful. A number of steel plant closures have taken place recently, mainly in the western world but also in other regions. Several more are under threat. Plant closures are conspicuous by their scarcity in the Chinese steel industry.

We detect that the previous trading policies associated with the steel industry are likely to be damaging the Chinese case for market status in the country’s application to the WTO.

Source: MEPS China Steel Review – January 2016 Edition

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