The Chinese steel markets have gone through another round of rapid price increase in the last two weeks, similar to that seen in the same period of last year but this time at higher price levels. Furthermore, the increase this time is not supported by strong exports but rather by the strong domestic economy.
In the last two weeks, the average wire rod prices in the domestic market increased by RMB 360/mt ($48/mt) to RMB 4,640/mt ($627/mt), rebar rose by RMB 377/mt ($50/mt) to RMB 4,787/mt ($646/mt), while the price of 2.75 mm HRC climbed by RMB 297/mt ($40/mt) to RMB 4,920 /mt ($664/mt). Adding the export tariffs, it is impossible to offer products for export from China.
In October, the growth in Chinese fixed asset investments broke an historical record reaching 31 percent compared to a year ago. With October, total fixed asset investment growth reached 26.9 percent in the first ten months of 2007. Furthermore, the country's consumer price index (CPI) increased to 6.5 percent in October, much higher than the three percent threshold determined by the government.
The prices of oil, coal, coke, electricity, and iron ore have also increased sharply in recent months. Staying with the subject of electricity, the power cuts in Tangshan have sharply affected the billet supply in the country.
On the other hand, the rumors that the Chinese government may announce new export tariffs on steel products and cancel the existing VAT rebates have not placed any pressure on domestic steel market prices. Instead, they have only led Chinese mills and traders to offer products at much higher prices.
The Chinese government has issued several policies aimed at cooling down fixed asset investments and steel investments. Nevertheless, so far it does not seem to have been successful. Now, however, the government says a tighter economic policy will be imposed next year.
For the moment, even the approaching Christmas period has not yet negatively influenced the Chinese steel market, which provides support for upward movement in the entire Southeast Asian market.