In an effort to further reduce energy consumption and pollution in China, the Ministry of Finance has implemented an export tariff between five and ten percent on a total of 83 types of steel products, including wire, hot rolled plate and steel sections, which takes effect as of June 1.
Merchant bars will take a 10 percent hit, which will increase Chinese mills’ tax costs by approximately $2.75 cwt. ($61 /mt or $55 /nt). After the export tax was announced, most Chinese offers were withdrawn. US traders are still waiting to hear new offers, which will most definitely be higher than the revoked offers. It is still doubtful that Chinese mills will be able to pass on the full increase to customers since the merchant bar market in the US isn’t in top shape -- domestic mills have not moved prices up for June, and a July increase is highly unlikely.
Still, market sources believe that because the cost increase is so significant, some of the export tax increase Chinese mills will pass on some of the export tax increase to their merchant bar export offering prices. Therefore, the pricing trend for import merchant bar is strongly up.
The Chinese government has also increased the export tax for billets from 10 percent to 15 percent. This has kept Chinese billet export prices high, and thus, regional merchant bar output in areas such as Taiwan has been stable in the last few weeks. Offerings from Taiwan are still in the range of $33.50 cwt. to $34.50 cwt. ($739 /mt to $761 /mt or $670 /nt to $690 /nt) FOB loaded-truck, at Gulf and West coast ports, though they are more dominant on the West Coast.
Billets in the Mediterranean region are softening, pushing merchant bar offerings from Turkey down by $0.50 cwt. Turkish offers to the US are now in the range of $36.00 cwt. to $37.00 cwt. ($794 /mt to $ 816 /mt or $720 /nt to $740 /nt) FOB loaded-truck, US Gulf ports. The pricing trend in this region is now slightly down as prices may slip a little further in the upcoming weeks.
License data from the US Import Administration shows for the month of April, worldwide light section exports to the US totaled 14,332 metric tons (mt). The top three exporters to the US in April were: Canada, at 5,377 mt; Japan, at 4,017 mt; and Mexico, at 1,720 mt. For May 2007, (with data collected up through May 30th) worldwide exports to the US totaled 14,729 mt, with the top three exporters to the US being Canada, Mexico, and Brazil. The data is for light sections of carbon and alloy steel, U, I, L, T and H shapes of 3” or smaller (does not include rounds, squares, or flats).
The US merchant bar market market, in general, is decent. Market players had expected more strength for this time of year, but things could be worse. Demand for larger sizes is still decently strong as commercial construction projects are underway. Lighter sizes are in a bit of a slump since the housing market has not made much of a comeback. Inventories are pretty average for this time of year, and domestic prices will remain stable in June. July pricing will depend on which direction the scrap market moves. Insiders suggest that June scrap prices will hold steady for the most part, with maybe just a small move up or down. A likely scenario is a scrap price dip of a maximum $10 / long ton, and if this change is realized, domestic merchant bar producers will most likely be able to keep prices steady again for the second month in a row.
Domestic merchant bar (e.g. 2 x 2 x ¼ angles) transaction prices for June are in the range of $33.35 cwt. to $41.05 cwt. ($735 /mt to $905 /mt or $667 /nt to $821 /nt), depending on size, shape, and thickness.