December 14 - the deadline for
China's steel exports at the export rebate rate of 11 percent after which the export rebate is becoming 8 percent. Furthermore, Chinese authorities will probably cancel the steel export rebate in January 2007 the soonest. These two issues have shaken the market considerably and made December a most unusual month with high exports.
From November on, more and more steel piled up at the Chinese harbors waiting to be shipped. Entering December, this situation has grown more serious, reaching its peak in the days just before December 14. All major harbors in
China are jammed with heavy truck and container truck traffic. On some roads close to the harbors, truck queues stretch to over 10 kilometers in length. A similar situation is seen on the sea. Numerous empty ships have bee-lined quickly to the harbors, while ships which have just been loaded seek to make a swift getaway. Due to the huge ship numbers, it was touch and go for a while whether or not seaway organization would see a complete collapse. It is reported that the elevated peak of maritime traffic almost led to the paralysis of some harbors.
However, following this mid-December climax, a short period of calm is due to appear. The market again seems likely to be caught in a wait-and-see situation, with the different players expressing varying opinions as to the next probable turn in events. In proof of this point, the number of signed steel purchasing contracts has dropped compared to previous months and a certain number of planned contracts have been delayed.
Due to the above-mentioned rebate rumor, domestic traders are postponing their quotations for the near future for fear of possible losses resulting from an additional rebate cut. Overseas buyers believe that Chinese sellers will probably hasten to sell their goods in hand in order to avoid potential losses. In addition, both in Asia and in
North America, and even in the EU, the demand for steel is currently weak. Therefore, buyers are not busy making future orders. As regards the domestic steelmakers, the latest indications are that they have started to slow down exports and are waiting for a higher price level due to the potential rebate reduction. Although a steel price hike is difficult in the present situation of general oversupply, some mills have started to prepare for the eventuality of higher price levels in the near future.
In fact, according to the internal signals emanating from the Chinese government, a further cut in the steel export rebate would be just a mid-way step in the reform of
China's steel industry. In order to effectively reduce pollution, energy
consumption and to maintain the healthy development of the steel industry, the imposition of new taxes is possible on some steel exports in early 2007. In conclusion, although December has already revealed itself as a month of disquiet, greater changes are likely to follow soon.