Sunday, January 25, 2009

Strong Yuan And Trade Conflicts May Hinder China's Steel Exports

With steel prices rebounding five weeks in a row, China's steel exports have now lost their price advantage compared with the CIS, which enjoys stable and cheap supplies of iron ore, coking coal and other materials.

At the end of last year, domestic HRC price began to recover and remains USD 100 to USD 200 per tonne higher than the international price. In the CIS, commercial HRC was quoted at USD 410 to 420 per tonne in December compared with a Chinese mainstream price of CNY 3800 per tonne tempting a number of traders to import the product. As per a Mysteel forecast, HRC imports in Jan 2009 would be an unprecedented 300,000 to 400,000 tonnes.

With the support of the stimulus policies and huge investments, China may become one of the few countries posting a steady steel demand in 2009, narrowing the price gap between home and overseas markets or may even pull the domestic price in excess of imports.

1. Current HRC price offer in the Shanghai market is up to CNY 3800 per tonne with a possible export offer to stand at USD 570 per tonne, 30% higher than that from the CIS. This has eroded the price advantage and may stagnate exports.

2. Expectancy of a stable RMB and depreciation of the countries' currencies will also hurt steel exports from China. For instance, the Ukraine currency, the Grivna, has lost 36.6% against USD while CNY gained 6.8% from the end of 2007 to January 2009, thus writing off the advantage of Chinese steel prices. This has also happened in other markets including Russia, Mexico and Brazil. In South Korea in particular, shrinking demand and a depreciating won are expected to hurt Chinese exports.

3. Trade conflicts are increasing as every country would like to protect its steel industry as world demand decreases. In the fourth quarter of 2008, China was attacked by the US, the EU, Canada, India and other economic bodies for exporting welded pipe and fasteners. Trade protectionism is expected to continue in 2009 if there is no substantial revivial in demand.

China exported a total of 59.23 million tonnes of steel products down by 5.46% YoY and accounting for some 10.39% of the total steel product output.

Source: Economic Reference

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