Wu Xichun: Reasons why steel prices underwent sharp rise and fall in 2005
SteelOrbis Shanghai
On Saturday, December 10, Wu Xichun, former head of CISA, analyzed the reasons that led to sharp rise and fall in 2005 finished steel prices.
Wu Xichun stated that the reasons of the dramatic price increase in the first quarter of 2005 are as follows:
1. The additional domestic finished steel output was up 22.39 percent to 15.10 million metric tons, 15.31 million metric tons lower compared to 2004, and the growth rate in 2004 was 29.5 percent. Though we take into consideration that there were only 29 days in February 2004, the 2005 growth rate was still lower than that of 2004. Many enterprises delayed their overhaul works to January 2005 due to the good market condition in the fourth quarter of 2004. This led to a y-o-y 9.4 percent decrease in daily output of finished steel in January 2005.
2.
China's export went up thanks to the good international market condition, led to a decline in net import volume. In the first quarter of 2005,
China's import volume of finished steel was 7.67 million metric tons; 780'000 metric tons lower than the 8.45 million metric tons in 2004. Therefore, the volume of finished steel that can be put into use only increased 7.43 million metric tons, or 9.8 percent year on year. However, the additional volume in the first quarter of 2004 went up by 28.32 percent to 16.71 million metric tons.
3. The Euro and yen appreciated considerably. Prices of raw material such as
iron ore, coal, metcoke,
pig iron,
scrap and ferroalloy picked up considerably. Market players expected the prices would keep on rising.
The first and the second reasons are chief factors. Due to the short supply, prices in February and market drove up dramatically. By the end of March, the average prices of 23 domestic markets were as follows: 12－25 mm
rebar price was at RMB 3'904/mt; 6 mm medium
plate price was at RMB 5'651/mt; 2.75 mm hot rolled coil price was at RMB 5'431/mt, and 0.5 mm cold rolled sheet price was at RMB 7'826/mt. These prices with an exception of
rebar prices were the highest that ever seen.
Wu Xichun indicated that steel prices in the second quarter declined, and the prices saw sharp price fall in the third quarter and October. The following are three major reasons:
1.
China sped up its release of additional
production capacity. The output in the second quarter increased 29.28 percent to 20.52 million metric tons on y-o-y basis, and that of the third quarter increased 25.67 percent to 19.55million metric tons. The growth rate of 2004 output was only 17.62 percent, and that of the third quarter was 22.21 percent. It is obvious that the growth rate of output in Q1, Q2 of 2005 was higher than that of 2004. However, the
consumption in industries such as fixed assets, real estate, machinery, auto industry, light industry and household appliances industry slowdown compared to the previous year.
2. The sharp price increase in the first quarter boosted imports. In the first quarter,
China imported 5.97million metric tons of finished steel, and the figure surged to 7.2426 million metric tons in the second quarter, with a 20.04 percent increase in daily import volume. Going to the other direction,
China exported 5.1881 million metric tons of finished steel products in the first quarter, and 6.3846 million metric tons in the second quarter. Compared to the second quarter in 2004,
China's net import volume decreased 4.19 million metric tons, led to increase in the additional volume from 7.43 million metric tons to 16.33 million metric tons, i.e. from 9.8 percent to 21.74 percent. The growth rate of additional volume in the second quarter of 2004 was 11.12 percent. Therefore, in the second quarter of 2005,
China shifted to a market that supply exceeded to demand. It's inevitable for steel prices to be in a downward trend.
This past October, the average daily finished steel output was 1.0679 million metric tons, a year-on-year increase of 23.65 percent. The import volume of finished steel was up 18.5 percent to 1.93 million metric tons, higher than that of October 2004, i.e. 1.63million metric tons. The export volume was down 10.8 percent to 1.34 million metric tons, which was lower than that of October 2004, i.e. 1.5 million metric tons. The decrease in export volume led to a high volume of products that could be used in this past October at about 33.69 million metric tons, 6.8 million metric tons higher than October 2004, i.e. 26.89 million metric tons, or 25.3 percent. The oversupply did not alleviate. Thus, the market steel prices kept going down. By the end of October, the average prices of 23 markets were as follows: 12－25mm
rebar prices was RMB 3'081/mt, 21.08 percent lower compared to March; 6mm medium
plate price was at RMB 3'865/mt 31.6 percent lower than March; 2.75mm hot rolled sheet price was RMB 3'493/mt, fell 35.68 percent compared to March, and 0.5mm cold rolled sheet price was at RMB 5'601/mt, fell 28.43 percent compared to March.
3. Anti-dumping practices on the products of some exporters led to oversupply of flat rolled products and disturbed Chinese market.
Starting from this year,
China's import volume of medium
plate in Q1 was 310'800 metric tons; 340'700 metric tons for Q2 and 463'300 metric tons for Q3, exceeded the volume in 2004. The import volume in October only was also higher than the prior year. During Jan-Nov period, the average price
Kazakhstan quoted us was $465.76/mt, while that in October was at $366.42/mt, far more lower than its domestic prices and international market prices as well. This Jan-Nov average import price was $713.91/mt, $248.15/mt, or 34.75 percent lower. The low average prices caused great damage to
China's profits.
During Jan-Oct period,
China imported 6.0022 million metric tons of cold rolled sheet, equaling to that of the previous year.
Russia's export volume to
China went up by 48.75 percent, that of
Ukraine went up by 37.97 percent, and 14.43 percent increase for
Taiwan. The increase in export volume of these three exporters totaled 562'200 metric tons. However, their export prices were far lower than the prices in their domestic and international markets. In October, the average price quotation from
Russia at
China ports was at $527.46/mt; $498.69/mt from
Kazakhstan, $609.79/mt from
Taiwan; $692.66/mt from South Korean and $724.14/mt from
Japan. In recent two months, Chinese cold rolled common carbon sheet prices dramatically went down. The influence of the anti-dumping was obvious.
In the first ten months of this year.
China imported 2.5991 million metric tons of hot rolled sheet/coil, 179'300 metric tons, or 6.45 percent lower than that of the previous year, i.e. 2.7784 million metric tons.
Russia exported 569'100 metric tons of the hot rolled sheet/coil to
China, a year-on-year increase of 402'700 metric tons, or 241.98 percent, becoming
China's largest exporter of hot rolled sheet/coil. (In 2004,
Japan exported 498'100 metric tons of such products to
China, ranking itself first.)
Thailand exported 249'600 metric tons of HR products, rose 224'700 metric tons, or 895.52 percent year o year.
India exports to
China went up by 47.21 percent; that of
Iran went up by 68 .93 percent;
Kazakhstan rose by 11.49 percent. The total of additional export volume was 746'200 metric tons, accounting for 28.7 percent of
China's import volume. In October,
China's average import price was at $468.75, while that of
Kazakhstan was $396.12;
Thailand, $426.29;
India, $427.87;
Iran, $412.48;
Russia, $445.64;
Japan, $752.18 and South Korean, $642.05.
Finally, Wu Xichun said that Chinese market is a complicated one that never seen elsewhere in the world. There are only ten large companies dealing with steel products, and 80 medium and small steel companies in
Japan. However, in
China, there are 200'000 companies that engage in steel industry.