Chinese at centre of price action
STEEL prices rising in China, demand and prices falling in the US. These are uncertain days for the metal. The ground is shifting under steel demand and prices and, as with many other metals and metals products, it is the Chinese that are at the centre of the action. Just as Beijing has sought to dampen exports of metals as part of its policy of lifting the economy to a higher level, so it is now attempting to curb steel exports.
Its recent decision to crack down on molybdenum and indium exports were, apart from conserving the nation’s resources of those metals, aimed at having a greater proportion of what is mined in China being processed and value- added within the Chinese industrial sector rather than providing raw materials to competitors abroad. So it is with steel: better to make cars and export them than just export the steel.
In late May, Beijing announced it was doubling the export tax to 10 per cent on 83 types of semi- finished steel products. The steelmakers in China had, nonetheless, seen this coming and the first five months of 2007 witnessed these companies exporting as much steel as they could; over that period to May 31, China’s steel exports soared 116.7 per cent compared with the same period in 2006.
This was all the more extraordinary in that China became a net exporter of finished steel products only 18 months ago. And this rush to export has led to consequences in foreign markets as other countries started to become concerned about the ability of China to swamp the world with product if it set its mind to it. Whether the increase in the export tax has any significant effect remains to be seen. Some analysts, including Bear Stearns, sees Chinese companies continuing to seek more sales abroad.
This very issue arose just this month. US steelmakers claimed that one Chinese maker, Wuhan Iron & Steel, had been dumping on the American market. The six US producers have alleged that Wuhan was subsidising welded steel pipe. These companies believe that China could be dumping in the US as much as $ US500 million in steel products a year. Wuhan has branded the charges as ‘‘ unfair’’, adding that only a small proportion of its output leaves China.
But the figures tell a story that is grim news to the US steel industry: in 2002, the Americans bought 10,000 tonnes of steel piping from China but in 2006 those imports had risen to 690,000 tonnes a year.
This all comes at a time when American steelmakers are facing a repeat of the events of 2002 — the year when a number of plants went bankrupt in the face of cheaper imports.
It was that spectre of that disruption to one of the backbone industries of US manufacturing that led President George W. Bush to impose tariffs on steel imports, aimed at foreign companies undercutting the high cost US industry. These barriers were removed only after protests by the World Trade Organisation and threats of retaliation from the European Union.
Could it happen again? Probably not in the form that Bush adopted in 2002, but there may well be a more selective form of barrier. There is precedent: as the Bloomberg agency noted when reporting on the Wuhan row, just as recently as March the US imposed tariffs of 99.65 per cent on some Chinese exporters of coated paper.
Bear Stearns’s latest report on the sector says US steel producers are starting to cut back on production — but the Chinese ones had incentive to produce for export because of government rebates.
Fewer homes are being built in the US and US automakers are switching their focus from gas- guzzlers to fuel- efficient compacts. Both trends mean dropping steel demand.
And it is not just imports that are