Fred Shi, from global steel trading company Macsteel International's Shanghai office has assessed the current situation in the steel markets and its outlook for SteelOrbis.
What are your views on the current hike in the finished steel market?
The recent increase in prices is mainly led by government policy.
On the one hand, since the 11th five-year plan (2006-2010) is coming to an end, each province needs to complete its energy saving and emission reduction targets by the end of the current year. The target was established by the State-owned Assets Supervision and Administration Commission of the State Council in 2007, and its achievement was incorporated as part of the performance evaluation of the person in charge of central enterprises. Meanwhile, China has made a solemn commitment at the Energy Conference to keep its carbon emissions within a certain range, and so the Chinese government will strictly limit emissions in the fourth quarter this year to fulfill its target.
On the other hand, China's government has always planned to reorganize the domestic steel mills, since a core target of the steel industry is to close the small-scale mills with high energy consumption and low value-added output, to promote mergers and restructuring of steel enterprises and to improve industry concentration. With the ending of the 11th five-year plan period, there is an opportunity to close some private small-sized steel mills via limitation of electricity supply and so to accelerate integration. Since the output of steel has dropped, market players are thus optimistic about the prospects for the market in the coming period. In addition, prices of raw materials including iron ore prices have not decreased significantly, which further strengthens the bright expectations for the market in the future.
How would you describe the export market in the recent period?
On the export market side, there has not been much activity as regards transactions. There are two main reasons.
Regarding the internal aspects, the firm and high domestic prices support the high export offers. On the external side, steel prices in the foreign market are at normal levels, and so acceptable prices for the overseas markets are at a low level. Therefore, it is hard to make deals.
Transactions are mainly seen in South America, Southeast Asia, the Middle East and parts of Europe. Exported products include hot rolled coils, cold rolled coils, low carbon wire rod (SAE1008B), high carbon steel bar, hot dip galvanized, PPGI, medium plate, special steel, as well as some steel pipe and sections.
How is the current situation in the international finished steel market?
The recent overseas market has generally been quiet.
In South America, since they purchased a lot in the previous period, currently purchasing from buyers there has slowed down and it is even heard that they have re-exported some products. Meanwhile, the prospects for steel demand from the region are promising due to its infrastructure, reconstruction and major events.
In the Middle East Market, Ramadan has just finished. At present, long products in the Black Sea region are rather cheap, while prices of hot rolled coils and cold rolled coils in South Africa and of hot dip galvanized and PPGI in both Taiwan and South Korea are also relatively cheap. This makes it more difficult for China to export to the Middle East.
Regarding the European market, the finished steel market there has made a slow start after the end of the summer holiday, especially in terms of demand for coils and coated products.
As regards the Southeast Asian market, because of the sufficient arrivals which had been ordered in the previous period in Vietnam and India, etc, purchases from these countries will be weak.
There is demand in other markets, but their acceptable prices are relatively low.
Currently, there are rumors that exports of boron-added products will be restricted. What is your view on this issue? If the policy is introduced, how will the steel market be influenced?
It is not clear whether the tax rebate on boron-added hot rolled coil will be cancelled. This depends on the increase in HRC exports. If the exports show a substantial increase, the relevant policies might be introduced.
The cancellation of the boron-added tax rebate will not be favorable to many traders and steel mills. With the national power rationing and limited production, domestic HRC product prices will increase. As a result, exports will decrease substantially.
How do you view the prospects for the steel market in the coming period?
The steel industry will be greatly influenced by relevant policies in the fourth quarter. As a result, it is expected that steel product prices will not trend downward. They may even show a slight uptrend with fluctuations in September and October. However, demand will weaken with the approach of winter, and so, overall, the trend in the market is expected to be down after October.