China is entering a new phase of its steel market development by changing its exports strategy. The focus is now on a more domestic demand-led phase of growth. As part of these efforts, the China Iron and Steel Association (CISA), a quasi-governmental organisation, has placed some key proposals before its members.
CISA proposals
The organisation has proposed that its members should aim to retain and sell low-value steel products within the domestic market first and encourage the export of high end, value-added products so that these create a good branding in the international market for China. Such a move will also push the steel mills towards development of high-quality steel. “The mills should resist exporting and, secondly, instead of exporting regular or low-end products, should concentrate on exporting high value-added items,” a source from China told SteelMint.
CISA is also asking its members not to sell to the traders in the exports market but directly to buyers in a bid to weed out speculation which can lead to inflationary tendencies. A lot of traders take position cargoes and wait for prices to rise. Speculations tend to heat up the market and China has become very strict on curbing commodity inflation to facilitate domestic steel development.
CISA is stressing on a domestic demand-led, resource-saving and environmentally friendly development. Working toward this end, the steel industry needs to take unified action in steel exports, bring in self-discipline, and promote high-quality development of the industry, CISA has indicated.
Impact of proposals on Chinese mills
CISA’s proposals have no legal binding and hence its members are not compelled to follow the same. However, at the same time, CISA is a semi-governmental organisation and many of its members are large mills with no private interest. Therefore, there is every likelihood that the mills will abide by the proposals. “The mills will not shrug off these proposals because there is no private interest,” the source from China observed.
The proposals are carving out a path for value-added exports which will make the mills more profitable since these are high-margins products.
Also, these proposals are a way of cracking down on high iron ore prices. If exports are cut, the move will exert pressure on iron ore prices which are a source of concern for the Chinese government at present. Already, iron ore futures on the Dalian Commodity Exchange dropped 6% on 19 Aug’21 on increased supply and weak demand outlook in China.
To cool down heated up iron prices, the government is encouraging the import of ferrous scrap through sops to the EAF mills in the form of lower power tariffs. Higher usage of scrap would lead to lower iron ore consumption, which, in turn, will pressure iron ore prices.
Outlook
The Chinese government is keenly watching the country’s export performance in August. If it feels there is a notable increase in exports, then it may slap the much-expected export tax and above to curb exports, the source informed SteelMint.
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