Procurement & Export Of Chinese Steel - The Devil Is In The Details

Most people are aware that China's steel industry is currently (and has been for a while) producing at overcapacity. The result has been a dramatic drop in global steel prices leading various countries to enact anti-dumping legislation against Chinese steel. However, in the last few months, there has been an (almost inexplicable) rise in Chinese steel prices leading to uncompetitive rates for specific types of steel products such as hot rolled coils (HRC), higher end blast furnace billets amongst others. Steel billets prices for instance rose about USD 100 per ton in the space of two months!



Steel billets awaiting loading at China's Tianjin port en route to Mombasa, Kenya (May 2016)

One of the key reasons for this difference between the perception of cheap Chinese steel and the reality of high prices amongst certain types of steel is that the steel industry in China is highly fragmented. China produces a wide range of steel quality some of which is not even suitable for export. However, more importantly is that non-market factors can dramatically alter the 'market' prices of steel in China. Take for instance the Tangshan International Horticultural Exposition 2016 taking place that has resulted in the closure of various steel mills to cut down on pollution during the expo. This has caused a short-term steel supply crunch in China's steel capital (Tangshan, Hebei) leading to a rise in steel prices.

The overall point is that China does offer quality steel and competitive rates, but one needs to be sure that they are not only  dealing with the right steel mills or traders, but that they are cognisant of the factors (short and long term) that impact the industry. In January for instance most mills would provide quotations that would be valid for a week if not more, at the moment however due to fluctuating prices some suppliers quotations are only valid for a hour to a day.

Many Chinese steel suppliers I have spoken to expect that 'market' prices to fall once again between June and July. "Why?" I keep asking, but I am yet to get a solid answer - "because this is just how the industry is" "the current prices are too high""the government cannot allow such high prices to persist".

East Africa bound 100mm * 100mm *12m steel billets at Tianjin , China (May 2016)

Source: Walter Ruigu