SteelOrbis Shanghai
On November 23,
Baosteel announced its price list for next year's first quarter.
This latest price adjustment from
Baosteel was not only the focus of considerable attention but also saw significant pressure being brought to bear by the steel industry – in particular, by the
China Iron & Steel Association (CISA) and the other leading mills. During a meeting held on November 16, the CISA emphasized the importance of maintaining stable market prices and urged the steel mills to keep their ex-factory prices steady. Sources also reported that
Baosteel was in often in negotiations with
Angang and Wuhan Steel during the period leading up to the publication of its new prices.
However,
Baosteel itself must also be aware that this price policy is not overly favorable for its domestic customers and its exports. As a result,
Baosteel added a special clause to its price policy. This states that in the event of changes in the futures price policy for delivery in Q1 2007,
Baosteel promises to lower contract prices if the futures price goes down and not to hike contract prices if the futures price goes up. This means that if market prices drop sharply,
Baosteel will then make some appropriate adjustments to its prices.
In fact, two factors may have an impact on this price policy.
The first is the Chinese government's export tax rebate policy. With the growing trade surplus, the Chinese government has been on the receiving end of great pressure from Western countries, especially as regards the rapid growth in steel exports. Therefore, the export refund rate will very likely be lowered in Q1 2007. As for the extent of the reduction, this depends on the export levels recorded for November and December. According to reports received from insiders, exports in November are expected to reach a new historical peak.
The second is RMB appreciation. Let's take
Baosteel's 3.0 SPHC as an example; although this time
Baosteel did not change its RMB price, the ex-factory price in USD increased $8/mt.
While
Baosteel's new prices will not affect the domestic market much, they nevertheless constitute good tidings for the exports of the other steel mills. These can announce higher quotations to the international market by referring to
Baosteel's prices.
Generally speaking,
Baosteel's price list may this time seem slightly high. Yet, the mill's special clause may ease their customers's concerns to a certain extent.