Chinese imports pressurise European steel prices

The European steel market is being influenced increasingly by other factors - principally the supply from foreign sources, and especially China.

Some European steel prices are now quite markedly starting to dip.

Stock-building is reaching the end of its current run, and inventory liquidation will no doubt follow.

Some producers are restraining their output to avoid excess supply coming onto the market and depressing prices further.

But the market is being influenced increasingly by other factors - principally the supply from foreign sources, and especially China.

At least one major EU flat rolled steel producer is indicating it will be offering strip products at unchanged or lower prices in the first quarter of 2007 in order to compete with these imports.

The increase in EU supplies from China this year has been truly startling.

For the largest volume product, hot rolled coil, EU imports from China in the third quarter of 2006 showed a tenfold rise on the same quarter last year - from just 56,900 tonnes to 597,800 tonnes.

Other products showed even larger jumps - for example, EU imports of Chinese wire rod increased from just 100 tonnes to 206,200 tonnes in the same comparison.

A breakdown by country clearly shows that southern European markets have been absorbing the bulk of the Chinese steel.

Of the 1.69 million tonnes of hot rolled coil that China sent to the EU in the first nine months of this year, 1.19 million tonnes or 70 percent went into Italy and another 250,000 tonnes to Spain.

Some 175,000 tonnes went into Belgium/Luxembourg - most of it no doubt through the port of Antwerp from where it would be distributed to the markets of northern Europe.

MEPS projections suggest that, for the whole of 2006, the EU might import as much as 2.29 million tonnes of Chinese hot rolled coil, 1.05 million tonnes of plate, 341,600 tonnes of cold reduced coil, 990,700 tonnes of coated coil and 653,200 tonnes of wire rod.

These would represent year-on-year increases of, respectively, 626%, 583%, 287%, 504% and 636%.

Therefore it came as no surprise that steel was on the agenda when EU trade commissioner Peter Mandelson met his Chinese counterpart Bo Xilai in Beijing earlier this month.

The two sides agreed to establish a working group to discuss steel trade issues with the aim of heading off problems before they arise.

Both sides want to avoid anti-dumping actions.

Contacts between the EU and China at industry level have ensured the Chinese side is aware of European concerns about the rapid rise in imports of steel.

They have already resulted in an informal commitment to rein in their shipments to Europe.

The EU is not the only trading partner putting pressure on the Chinese over steel exports.

The USA has long been urging them to restrain shipments, as have some Latin American and Asian countries.

Nevertheless, the export flow continues to grow.

China's total exports of finished steel products in January to October 2006 were almost double those of the previous year.

It may have been pressure from trading partners that prompted the Chinese government recently to reduce tax rebates on some steel exports.

A new 10% duty on foreign sales of semi-finished products has also been imposed and further action to curb steel exports is rumoured to be imminent.

What would be more effective, however, would be for China to allow its currency to float freely.

A significant revaluation of the yuan would make exports less competitive.

This could lead to the elimination of many small-scale inefficient steelworks - something the Chinese government says it wants to see.

* Source: MEPS - European Steel Review.

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