Recently, some big macro-economic changes have taken place in
China, which are having a wide and deep influence on the country's economic development. Some of these major changes will directly affect
China's steel market. It is well worth while to take a careful look at these changes as this will help us to foresee the future trend of the steel market in
China.
Continuing appreciation of RMB
The value of the RMB has increased by more than three percent since the beginning of the reforms on the RMB pricing system. Most recently, the price ratio of RMB to US$ issued by
China's banks has been around 7.90:1.00. It's widely believed that the RMB appreciation trend will certainly continue for a long period until
China's exports are affected seriously. Under such a circumstance, the export prices of Chinese steel will increase accordingly. However, a price hike of three percent cannot substantially impact on steel exports at the current time, due to the world market price levels remaining higher than those in
China by a bigger margin.
Increase of banks' loan interests
On August 18,
China's central bank again adjusted the loan interest rates of domestic banks by adding 27 points. This measure is aimed at restraining the current strong trend of fixed assets investment in
China. Its direct result on the steel market is that the circulating cost of steel products will increase immediately. Because steel traders play a very important role in the domestic market, the increase in their costs will lead to a drop in demand for steel. As a result, there's less likelihood of a price increase in steel in the near future. As regards steelmakers and end users, they are less affected and there will be a period of delay before they experience practical effects.
Adjustment of export rebates
From Sep. 15 on, the export rebates for many exported products were adjusted by the government. With these policies, the Chinese government wanted to achieve three major goals: to prevent limited local natural resources from being exported, to adjust the structure of exported products by means of restraining the export of low-end products and encouraging exports of high value-added products, and finally, to release the pressure due to RMB appreciation and the huge international trade surplus. Indeed, due to its long term surplus in international trade,
China's balance of foreign exchange reserve amounted to USD 987.9 billion by the end of Sep. 2006.
As regards steel products, the current influence of the export rebate reduction was less serious than expected. This was because some major exported steel products were not included in the adjustment list, and also because the price gap between the domestic and world markets is still big.
A declaration of great significance was made by the Chinese government recently. It said that from next year on the state will take away a certain part of net profits from state-owned enterprises and apply them for the welfare of the whole of society. The effect of such a measure will be very big. All
investments by state-owned enterprises will thus be limited seriously for the lack of capital. Due to the combination of the above factors, the future trend of the
China steel market lacks clarity for the moment.