Chinese pressure continues in Mediterranean, in spite of tax rebate on wire rod

The slight threat posed by Chinese-origin wire rod in early 2006 developed in strength after the Chinese government's announcement in June that they would reduce VAT charges. Before the announcement became effective, producers and exports companies had started to make aggressive wire rod offers. Customers in Southern Europe had previously not shown any interest in these offers due to the compulsory high tonnage purchases involved and the long-period deliveries. After the announcement, however, large volumes of long product sales have been seen in the big ports of European and Middle Eastern countries. Wire rod sales to Europe and the Middle East reached a peak in early July and August due to the monthly deferral of the tax rebate law and also due to the price decreases in the Far East. Currently, huge volumes of Chinese-origin wire rod are reported in Europe, and this volume is expected to increase with further ship arrivals. SteelOrbis has heard that offers to South Europe are at $480-490/mt CFR. The major role of Chinese-origin wire rod in the Mediterranean has created difficulties, especially for wire rod export countries such as Ukraine, Russia, Turkey and Egypt. However, wire rod exports do not seem possible for the time being from Russia due to its strong domestic market. In addition, Ukrainian mills have directed most of their long product exports to Russia. Egyptian and Turkish producers are happy to see Russia and Ukraine partially out of the market. Yet, if the domestic market starts to slow down and Russia and Ukraine begin export offers again, cut-throat competition could be seen in the Mediterranean and Middle East. The prices for Egyptian and Turkish origin wire rods in late August / early September were at $470-480/mt FOB Egypt ports and $480-485/mt FOB Turkish ports, respectively. An Egyptian mill concluded a sale to Algeria at $475/mt FOB, while a Turkish mill concluded a sale to Israel at $480/mt FOB. During this period, Southern European mills forced Turkish and Egyptian mills to give lower prices due to Chinese pressure. Later, however, the export offers of the Turkish and Egyptian mills increased along with the activity increase in the Turkish and Egyptian domestic markets and the increase in scrap prices. Turkish-origin mesh quality wire rods increased to around $495-500/mt FOB. Nevertheless, buyers were reluctant to move for these offers. Current offers are at $490-495/mt FOB. Importers in the Iberian Peninsula, taking into account the Chinese prices, are making counter-bids at Euro 390/mt CFR levels to Turkish mills. The Spanish and Portuguese are thus trying to apply pressure on prices although they know that their proposed price levels will not be accepted. It has been heard that Egyptian mills have concluded mesh quality wire rod sales to Spain at $482-487/mt FOB. Chinese-origin wire rod has a major role in the Mediterranean, just as it has in the US. The Chinese product is dominant in particular in most of the big ports of Southern Europe. The Turkish and Egyptian mills hold sway, however, in the small ports where the Chinese ships do not dock. The 3 percent tax rebate announcement in China does not seem to have much affected Chinese dominance for the time being. In the forthcoming period, it appears that the situation will be determined by the Far Eastern domestic market.