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Government action
15-17%, on top of increases already applied in The potential level of European – and
Inflation is now a major political as well as
March and April. increasingly probable US - antidumping
economic concern for the Chinese government. measures against Chinese fasteners is
Continued appreciation of the RMB Yuan is
Container sea freight and road
impossible to predict at this stage but, at
likely to be seen as a valuable tool to pull back
transport
whatever level, the effect will be to increase
inflation. The removal of remaining export
During 2007 the cost of container sea freight
world fastener prices. It is highly improbable
rebates may also be seen as a contribution to
from Asia to European ports more than
that sufficient capacity exists in other
restricting an overheating economy, as well as
doubled. The volume of containers passing
producing countries to substitute the current
combating growing protectionist attitudes from
through Shanghai port in 2007 increased by
volumes and producers in Europe and other
Western importing countries.
20%. Although a slowdown is forecast, 2008 is
manufacturing markets are intent on
Regulations targeted at reducing
still expected to grow by a further 15%. The
achieving increased prices for standard
environmental impacts and pollution, as well
imbalance between East-West and West-East
fasteners. By definition the only reason
as improving employment conditions,
traffic also continues. With steel and fuel costs
companies in higher cost fastener producing
represent significant on-costs to business.
rising, container freight costs are more likely to
Enforcement appears to be increasingly
continue increasing rather than falling off.
countries will have for investing in standard
rigorous. Coal stockpiles are reported to be
fastener production is if prices increase
low as a result of poor weather earlier in
substantially to justify the relatively long
Chinese cold heading wire
the year compounded by the closure of
monthly average price US$ pay-back on additional fastener production
small and, in many cases, illegal mines.
$900
equipment.
Fastener producers in China are deeply
The pace of current cost increases is
$800
concerned that their products are now
explosive and a level of speculation,
perceived in government circles as low-
impossible to calculate, must exist. These
$700
priority export products, because of the factors, together with the fragile condition
high levels of energy and pollution entailed $600 of the US and other developed economies,
in raw material and finished product almost certainly mean there will be a
manufacture.
$500
Low Carbon W i re C1018-1022
correction of some sort. However, while
Mid Carbon W i re C1035
High Carbon W i re C1045
CISA A ve W i re Price ex-mill prices almost certainly will dip in response
Construction activity
$400
to short term factors the underlying trend
China is undoubtedly undergoing a massive
$300 is likely to remain strongly inflationary and
construction boom in the run up to the
JA S O N D J F M A M J JA S O N D J F M
2006 2007 2008 it would be extremely imprudent to base
Olympics. In the personal housing market
commercial decisions on anything other
underlying trends are, maybe, not so strong
than the expectation that higher prices will
with growing indications that housing
SUMMARY
sustain in the long pull.
transactions, although prices in Shanghai and
It must be said, particularly in relation to steel
Beijing particularly remain strong despite the
costs, that a number of short-term factors have
That underlying trend presents the
market inactivity. Clearly there is a potential for
fuelled the dramatic increases and that, almost
fastener supply chain with real challenges.
construction activity to fall off post Olympics
certainly, speculation will have meant stocks
There have been reports of recent
with a consequent dampening off steel prices.
being withheld from the market.
‘invasions’ of buyers to Vietnam and other
However, there is a backlog of other major
Nevertheless the main input costs have
countries in search of a ‘new China’.
projects – including for example the high speed
risen substantially and show every sign of Detailed analysis of such potential is for
rail link between Shanghai and Beijing that has
remaining at higher levels for the foreseeable another day but all the indications are that
now been approved.
future. hopes will generally be confounded as
The world steel market is continuing to
many of these economies rely on imported
Wire costs
consolidate and there is a strong probability of
steel or have complex trade barriers to
Cold heading wire costs have increased
consolidation in its raw material suppliers.
protect domestic industry.
consistently throughout the last two years.
Extractors and steelmakers have tasted a
Consolidation in the Chinese fastener
The graph shows average costs to fastener
sustained period of profitability as a result of
industry looks inevitable. Senior insiders in
makers for the main cold heading grades and
strong increases in world demand and
the Chinese fastener industry privately
the official China Iron and Steel Association
restricted raw material supplies. These
acknowledge that significant antidumping
(CISA) average mill price for 6.5mm wire rod of
companies are intent on maintaining that
measures could prove to be the tipping
all grades. Very few fastener makers have the
profitable status.
volume to buy direct from mill and are,
Cold heading wire rod represents a very
point that catalyses as much as a 30%
therefore, also vulnerable to stock holders
small proportion of total steel output and
reduction in the number of Chinese
restricting supply to capitalise on rising costs.
represents only modest added value to steel
factories. The bottom line is that the cost of
As this report was written at the end of
makers. As a result fastener industry demand
fasteners, wherever they are sourced, has
April, wire prices in China began to increase
has little real influence on the supply chain or
increased and is likely to go on increasing.
again dramatically, with C1035 wire being
the prices charged.
It is also highly likely that, in the pursuit of
quoted to fastener factories at prices in excess
It is clear that China has ceased to be the
trying to offset those costs, buyers will face
of RMB 6,000 per ton, with indications this
exporter of deflation it has been for many
greater than ever quality risks.
figure will rapidly increase to RMB 6,500 by mid
years and is now fuelling world inflation. There Like it or not buyers and sellers, long in
May. The severity of the increase meant that
is no evidence that trend is reversible. Nor is the habit of demanding and conceding cost
several fasteners factories were refusing to
there evidence that any other region has the downs, are about to be faced with the
quote export customers. Those that were
capability of taking on the role of low cost
challenge of discovering a new and
prepared to do so were applying increases of
production across a wide range of goods.
sustainable paradigm in fastener trading.
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