China encounters more difficulties on steel exports to S. Korea

South Korea is currently the biggest export destination of Chinese steel. Parallel to increase in China's steel exports in 2006, S. Korea's imports from China have also increased by a large margin. During January-May, S. Korea's total steel import from China reached 3.17 million tons while it was 2.67 million tons during the same period of last year. Local S. Korean mills are dissatisfied due to the rapid increase of imports from China. Recently, S. Korean government warned China to control the quantity of its steel exports, and showed their intention of possible antidumping measures. Meanwhile, July and August are the traditional dead season for S. Korean steel market. Now, China's export price is close to, and even higher than, S. Korean local market price. Therefore China is losing the price advantage and facing more difficulties on exporting steel to S. Korea. Currently, major steel products exported from China to S. Korea are rebar, wire rod, plate, and hot rolled sheet and coil. Their export quantity is more than two thirds of the total steel imported by S. Korea. In the first half of 2006, China's export price kept increasing due to domestic market boom. This trend is still going on. At present, hot rolled coil quotations with August delivery are around $550-580/ton CFR. Among them, the quotations for pipe rolling hot rolled coils are around $575/ton CFR, up $30-40/ton month on month. Plate quotations have also increased to $600-648/ton CFR level. Besides these, other steel products' prices have increased by different margins. Although S. Korean POSCO increased its ex-factory prices in July, the mill's cold rolled coil price is still beneath that of imported from China. South Korea has been the leading country regarding steel consumption per capita for the last 5 years. The consumption per capita in 2006 is estimated to be 1,010 kg while it was 969 kg last year. This is mainly caused by the fast development of S. Korean shipbuilding, electronic and automobile industries. Korea's huge local demand promotes its steel supply from import. Last year, S. Korea imported 8.5 million tons of steel in total, and it plans to import 8.3 million tons this year. As S. Korea's neighbor and the biggest steel making country, China exported approximately 6.8 million tons to S. Korea in 2005, and the figure is estimated to be 7.5 million tons in 2006, almost 90 percent of S. Korea's total import. In the second half of 2006, S. Korea's local demand for construction steel such as reinforced bar will decrease due to the delay of construction projects, similar to China. Influenced by high oil price, the outlook for automobile production and sales is not very optimistic, either. These factors will cause negative influences on China's exports to S. Korea. It is logical to forecast that China's steel exports will not be as good as that in the first half of the year. Particularly, once the antidumping investigation on Chinese steel is launched by S. Korean government, Chinese export will inevitably go down.