HRC up despite negative factors

SteelOrbis Shanghai The Shanghai market closing price on December 8 for HRC of 4.5-9.5 mm thickness from China's main steelmakers is about RMB 3720/mt ($477/mt) – an increase of RMB 50 over last weekend. However, few transactions were recorded at this price. In Brazil, it seems that the steel mills have intentionally slowed the speed of slab price negotiations with North American buyers for 2007 shipment, and so no global price has been concluded for 2007. Brazil steelmakers will have a slab quotation to the USA at US$450/mt FOB in Q1 2007, up US$50/mt compared with that of Q4 2006. Currently, most export quotations for re-rolled from Chinese steelmakers and traders are at about USD480-500/mt FOB, while HRC commodity specifications are at around USD450-470/MT FOB. However, buyers from Southeast Asia are not active in purchasing such material due to their expectations for a downward price movement in HRC. The Chinese steel marketplace has been continuing in a soft trend this week due to certain factors: The campaign to eliminate outdated steel factories being carried out by the Hubei Province-based Tangshan authorities has been proceeding in quick and comprehensive fashion since Dec. 1. Local government officials are doing their best to ensure success by cutting off electric power supply, carrying out inspections and by shutting down facilities that are unable to meet the necessary conditions. Another factor is the reduction in the export tax rebate from the current 11 percent to eight percent from Dec. 15 onwards, in addition to the rumored complete cancellation next year of the rebate by the Chinese government. In addition, China's National Development and Reform Commission (NDRC) has emphasized that such over-producing sectors such as iron and steel, cement, and aluminum will still be the main focus of their attention next year. The NDRC's aims for 2007 include the elimination of out-dated production facilities and clamping down on high-pollution enterprises. Though the inventory of steel products is at a low level in China, the volume of Chinese exports to other countries nevertheless has still seen a quick rise. The strong demand from domestic buyers has decreased slightly. The negative effects of worsening winter condition on construction site work have resulted in low demand for steel products. Another point that should be noted carefully - some unofficial steel futures contracts offered by e-commerce companies not approved by the Chinese government have put some pressure on the spot market in Shanghai, China. Market confidence has decreased sharply with much speculation about these futures contracts.