Chinese rebar price decrease affects mills in SE Asia

The decrease in the tax rebate ratio has not helped to push up ex-China rebar prices significantly, while a narrow gap still remains between China's rebar and billet export prices. Reports received show that China's rebar offers to Southeast Asia countries are at around $400-410/mt CFR level and that deals are being concluded at around $390-400/mt CFR level. Although the price difference in question is slight, traders are not really suffering that much. The reason is that they still can obtain an 8 percent tax return for their rebar sales, whereas no tax returns are possible for their billet sales. This means that a trader actually earns $410/mt including 17 percent VAT from rebar when he sells it at $380/mt FOB, while he earns $380/mt including 17 percent VAT from billet when he sells it at the same price. The difference is sufficient to make a profit. The actual problem of the traders is finding buyers for their rebars. Although Chinese rebar exports increased around 70 percent year on year in January-August 2006 to 1,978,220/mt, production has continued to grow very rapidly at the same time. The Chinese mills are consequently having trouble in selling their products. Traders are buying rebars from the mills at a relatively low price, which enables them to obtain a profit so long as they manage to export the products. Although the quantity of rebar exports is still very high compared to the average figure of the first 7 months (235,680 mt), and to August 2005 (91,985 mt), it decreased to 328,429 mt in August this year from 400,939 mt in July. Nevertheless, rebar production continued to increase, with the result that rebar prices have come closer to billet prices since August. Neither traders nor purchasers are suffering from the low price of rebar. Actually, it is the steel mills in China and the importer companies which suffer the most. Current expectations are that ex-China billet prices will soften because of a slowdown in demand, which may mean bad news for the foundries.