Commodities | Nov 16 2006
By Chris Shaw
Bluescope Steel (BSL) may have reported a strong start to the year at its AGM this week, but as industry consultant MEPS notes the outlook for the global steel industry remains under threat from the possibility of lower prices.
MEPS points to the European market as an example of this as prices for some products are beginning to turn down as stock build-ups have all but run their course, meaning some inventory liquidation can be expected in coming months.
This is causing producers to limit output in an effort to support prices, but this is proving ineffective as at the same time higher imports from China are limiting price gains or helping push prices lower.
The magnitude of the increase in imports from China is impressive, MEPS noting for hot rolled coil EU imports from China have increased from 56,900 tonnes in the September quarter last year to 597,800 tonnes for the same quarter this year. Wire rod imports have increased even more, up from 100 tonnes in the September quarter last year to 206,200 tonnes this year.
MEPS estimates total imports from China to the EU this year could reach 2.29m tonnes of hot rolled coil, 1.05m tonnes of plate, 341,600 tonnes of cold reduced coil, 990,700 tonnes of coated coil and 653,200 tonnes of wire rod. In percentage terms, these volumes would represent increases from last year of 626%, 583%, 287%, 504% and 636%.
With volumes increasing by such amounts the pressure on the Chinese producers to limit exports is also increasing, not only from Europe but from North and Latin America and some Asian markets.
MEPS suggests this pressure may have contributed to the recent move by the Chinese government to reduce tax rebates on some steel exports, with further action likely in coming months.
But as MEPS notes, a more effective approach would be to allow the Chinese currency to float freely as any significant revaluation of the currency would decrease the attractiveness of Chinese exports and so put less pressure on prices. It may also result in the closure of some capacity in China, an outcome the government has been targeting.