Market players play wait-and-see regarding new tariffs

SteelOrbis Shanghai The Chinese semi finished market maintained its weak tendency throughout the past week. Billet prices in many regions, especially in eastern China, saw a slight decline, with a bad trading performance being observed on the whole. Meanwhile, the slab market continued its stable trend. By the end of trading on November 1, the price of common carbon billet in Tangshan, Hebei Province, decreased RMB 10/mt ($1) to RMB 2'810/mt ($ 357), that of 20MnSi remained constant at RMB 2'870/mt ($ 367). The ex-factory price of slab from Laiwu Steel is at RMB 2'920/mt ($373), equal to the level of the previous week. Last Friday, the Chinese government made a sudden announcement regarding new export tariffs for semi finished steel, pig iron and other products. The new tariff policy is effective as of November 1, 2006, allowing the steel mills no buffer period to digest the change. In order to avoid the tariff costs, many steel mills and traders tried their best to export their products before the deadline. Those who failed to do so in time have begun negotiating with their foreign partners on the apportionment of the raised costs resulting from the new tariffs. However, some steel mill insiders have disclosed that these negotiations are not going smoothly. Since the Chinese steel mills and foreign purchasers are busy with their current contracts at present, the impact of the new policy still needs to be evaluated. Right now, no formal export quotations and foreign purchase quotations are being given out. It is expected that the steel mills will determine quotations based on the market situation only after they complete their current contracts. The same is true as regards foreign purchasers. Influenced by the weak market performance and new tariff policy, the Chinese market has taken an even further downward turn. Northeastern China has already entered the winter period. Many construction works there are coming to an end, leading to the decreased demand for finished steel. This has influenced the purchasing of rolling mills, and so some semis producers have also begun to reduce production. The market in northern China saw a slight price decline. On one hand, sales of finished steel are not good. On the other hand, however, rolling mills are expecting a price decline in semi finished steel because of the new tariff policy, causing a remarkable drop in purchases. However, semis producers are not eager to lower their ex-factory prices – given the low quantity of products that have been stocked up. Nevertheless, in Tangshan - the major production base for Chinese semis exports - the local mills seem quite anxious. In their view, the purpose of the new government policy is clearly to curb semis exports. If the desired effects are not seen, then the government may take further measures, such as raising tariffs again. Therefore, exports will definitely be curbed whatever happens. For the future, it seems that mergers with rolling mills would be a fairly reasonable option for them. As regards eastern China, hit by the new export policy, semis producers lowered their ex-factory prices over the past week in order to avoid the inflow of semis from the northern regions. All in all, the foreign purchasers, Chinese rolling mills and semis producers are all standing aside, waiting to see the impact of the new tariff policy. The impact is still in doubt, but one thing for certain is that the time for bulk Chinese semis exports has gone for ever. This will be a very difficult issue for the South East Asian rolling mills, which will not only lose their supply of low-cost Chinese semi finished steel, but will also face increased competition from Chinese finished steel.