Rabeco Steel AB - Blog

July was a very good month for steel with both higher prices and production levels. Fueled by a good demand and a tremendous credit expansion china is on track to exceed a production of 520 million tons of steel this year.

In order to revive the almost non-existent export market for steel the Chinese Ministry of Finance announced yesterday that it will increase the export tax rebate on among others HRC from zero to 9 % with effect from 1^st of June 2009. The move comes after weeks of speculation and was very much expected.
Our view is that Chinese products now will return to the international market, albeit on a very limited scale.

With heavy production cuts across the board the world’s steel industry is trying to get out of the worst slump in decades. De-stocking is still a priority for whole-sellers and traders in most markets. In general terms there are really very few signs of a recovery. In our view the current situation points to quite stable prices in the coming 6-9 months.

Steel markets are weakening further in response to substantially lower demand combined with production overcapacity. World steel production in January 2009 declined by 24 % year-on-year. Outside China the production fell by 40 %. According to latest reports Chinese mills may soon have to reduce their production in order to support current price levels. Some steel qualities are now sold under production cost.

For some time now the demand for steel has slowed and prices have been sharply down in some areas. We believe that competition and a slower economic growth will force prices down already in the final months of the year and definitively in 2009.

The widely expected change in export policy has not so far materialized. According to our sources it is now probable that the change might be delayed several months due to the general slowing of the economy and the current lower demand for steel.

According to China Metallurgical News, the Chinese government will soon announce a new steel export policy, which in effect would cancel all tax rebates on steel export. In view of the fast growing Chinese steel export, a policy change could very well be in place already beginning September.