Chinese CR production costs have increased tremendously in the last few years; however, the price this material is continuously decreasing; hinting that the competition is getting tougher in domestic Chinese market. Furthermore, HR pickled products have started to take place of CR products.
The price decline of cold rolled steel products began in 2005. In 2007, through the first 9 months, the price of cold rolled coils indicated 2 to 5 percent decrease compared to the same period of 2006.
Meanwhile, it is well known that the production cost of steel production increased obviously. Apart from the high prices of international iron ore and freight costs, other cost items such as the price of electricity and coal have also increased sharply in China this year.
For example, the price of coke in October 2007 increased 25-30 percent compared to the same month of last year. The increase was due to the government's strict supervision regarding the safe production at inland coal mines. As a result of this supervision, the output of China's coal only increased by 11.2 percent in the first eight months of 2007, lagging far behind the demand growth. In order to meet the domestic demand for coal, the imports have increased by 52 percent in the first eight months, compared to the same period of last year, and China became a net coal importer for the first time in history.
Despite such a strong increase in costs, what is the reason that caused cold rolled steel prices to move on a soft line? There are more than one reason:
1. The slow increase of demand
The strong development of national economy still creates a big demand for CR steel products. However, the pace of the demand increase has notably slowed down in recent months. Except for the automobile industry's 25 percent year-on-year growth rate in average, the demand for CR steel from other major downstream industries such as household appliances, hardware, packing industry, and containers is just keeping a normal increase rate (around 3-8 percent) as the supply and demand in both the international and local markets reached equilibrium.
2. The increase of output is still pacing up
In the end of 2006, China's CR steel capacity was up by 354 percent (or 60 million mt) compared to the figure in 2001. Adding the planned 11 million tons in 2007 and 14 million tons in 2008, China's CR steel capacity will reach nearly 75 million mt in the end of 2008. The average annual growth rate is 12.5 percent. This increase rate is apparently faster than the growth of demand.
3. HR pickled products started to take place of CR products
Due to the price advantage, more and more manufacturers attempted to use HR pickled products instead of CR products. Due to the improvement of technology, the surface quality of pickled products is close to that of the CR products. Thus, unless they have specific requirements, the consumers desire to use HR pickled products instead of CR products.