58
negotiating with the government to be India’s Tata Steel has also indicated it will long period of insulation from the deteriorating
UIforwardUIforwardUIforward
compensated for also shutting increase prices, despite strong government RMB/Dollar currency relationship. For Eurozone
production in the summer. pressure for restraint. Chinese mill prices importers a strengthened Euro presents a
The Chinese government is clearly also continue to increase weekly and are expected reversed picture creating, at least temporary,
concerned that economic overheating will to see an increase of around 10% in May. insulation against the strengthening RMB.
further fuel record levels of inflation and that Angang Steel is one company that has There are indications that Chinese exporters
unfettered steel exports will increase pressure announced increases to offset raw material are less and less willing to accept orders in US
in the US and Europe for swinging antidumping surges. At the end of April Chinese fastener Dollars. While a trend towards Euro would help
measures on steel products. The EU is shortly producers were confirming to this magazine importers in the Eurozone, sterling’s weakened
expected, anyway, to announce an that they expected to pay 10% increase in position against the European currency will
antidumping investigation on the import of May. Many also highlighted concern over present continued problems for UK importers.
steel wire from China. availability of wire - alleging stockists were,
By the last quarter of 2007 China had again, holding back supplies against higher Inflation
largely eased out of the world steel market prices. Inflation has become a major concern for the
contributing to shortfalls and upward price Chinese government as well as for companies
pressure. As the position on raw material there. Officially inflation hit a 12-year record of
supplies has tightened, other steel exporting 8.7% in February. Most companies emphasise
nations have taken similar measures to protect the word ‘officially’ and speak of substantially
domestic steel supply. Currently the Indian higher levels for many goods including staple
government is trying to limit exports of steel foods. The March statistic showed a minor
and raw materials. improvement to 8.3% but the deepest source
of concern in China is food inflation running at
Steel shortages over 20% since the beginning of the year. In
World steel consumption continues to grow particular there is real concern about the
year on year. In 2007 growth is estimated to political as well as financial implications of the
have been 7%, with similar growth forecast for soaring price of rice.
2008, and 6% forecast for 2009. While As a result requirements on banks to hold
demand in the US wavered during 2007, it reserve funds were increased in April to 16% -
remained strong in the ‘BRIC’ economies, further tightening the credit market.
(Brazil, Russia, India and China) and US
W o rld Steel Consumption
Expectations are that further fiscal controls will
demand does appear to be growing again.
2008 Forecast (Data source IISI)
be applied and may include two increases in
Steel traders report shortages across the world
Japan & K o rea
Other Asia
India 10%
10%
base interest rates in coming months.
market, driven by raw material shortages, by
4%
Oceania
1%
While overall inflation clearly impacts
expectations of price increases, and by the fastener companies and their workers the
effects of extreme weather both in Australia
Europe
17% tightening of the credit market represents
and in China, just before the New Year holiday immediate and major cash flow issues when
period. combined with the dramatic increase in the
China
There are also reports of some mills
33%
cost of cold heading wire. Factories generally
R u ssia & CIS
standing still for want of raw materials. Turkish 5% report that they are being forced to hold less
NAF T A
mills for example are finding it difficult to get
11%
Middle East
material stocks and are, therefore, more rapidly
Africa
supplies from the Ukraine, because of very
4%
C & S America
2% 3%
impacted by cost increases. In Haiyan the
high demand in Russia and the CIS countries. fastener association has taken the
ISSUES SPECIFIC TO CHINA extraordinary measure of providing guarantees
Steel prices There are a series of sustained factors that to steel suppliers on behalf of it members so
Steel producers worldwide have enacted major have turned China from an exporter of that they can place orders for materials as soon
price increases for second quarter 2008, on top deflation to an exporter of inflation in most as they receive the customer order, rather than
of increases for the first quarter. Taiwan’s China products, including fasteners. risking raw material increases that, at current
Steel Corporation increased prices by a record levels, can easily make a production order
19%. Korea’s POSCO increased by 17%. Reduction in export rebate unviable.
Baosteel increased by similar levels and, In July 2007 China reduced the tax rebate paid
unprecedentedly, said prices would only be for to exporters of fasteners, amongst many other Labour costs
April not for the full quarter. products, from 13% to 5%. As the Chinese Labour costs in the industrial areas have been
European prices have been rising since economy continues to overheat there is a on an upward curve over recent years as a
November, with long products generally seeing strong expectation that the remaining 5% will result of skills shortages and the level of
a 20% increase. Wire rod, however, has be removed entirely. labour churn – people quitting one job for
suffered particularly and seen increases closer another. In January 2008 new labour laws
to 35%. In the UK Corus applied wire rod Currency came into force further contributing to the
increases of GB£70 to GB£90 at the end of The RMB Yuan has progressively appreciated costs of employment – estimates of the
March. Elsewhere in Europe April wire rod against the US Dollar. The Dollar is now worth impact vary between 4 and 10%. Expectations
prices increased by upwards of 100 euros 10% less in China than at the beginning of that migrant labour would be less willing to
compared to the beginning of the year. 2007 and 4% less than at the beginning of return to the coastal regions following the
In China wire rod prices have continued to 2008. This trend is expected to continue, New Year holiday, preferring to seek work
increase on the back of big increases particularly as China wrestles with high closer to home, have proven correct -
throughout 2007. inflation. weakening the supply of skilled workers.
Now a new round of wire rod increases is For European importers the picture is mixed. Overall labour costs are expected to rise in
brewing. Taiwan’s CSC is increasing domestic In the UK the weakening of the Pound to the 2008 by 20%, with some analysts predicting
prices to offset iron ore and coal cost increases. US Dollar as well as the Euro has reversed a levels nearer 40%. UIforwardUIforwardUIforward
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