Report by Wang,Shang-yi
Recently, the price of carbon steel futures in China hit a new low for the year. Although there has been a rebound in raw material prices in the short term, it still cannot offset the many bearish factors in the market. The market sentiment is more conservative, and there is little improvement in short-term market demand. The market believes that international prices have fallen by more than 4,000TWD per ton in the past few months. Upstream steel mills should quickly narrow the price difference and improve the competitiveness of downstream orders in the future.
Last week, the Taiwan Steel Wire and Steel Cable Association and China Steel Corporation held a pre-market briefing, where industry players made suggestions to China Steel Corporation. They hoped that the opening price of steel bars and wires could closely track the international market. They also proposed a full retrospective pricing requirement for the second quarter, which means that the price increase of 2,000 TWD per ton in the second quarter could be refunded to downstream manufacturers. The magnitude of price reduction in the third quarter is of secondary importance. However, China Steel Corporation politely declined the request for full retrospective pricing, citing the need for downstream players to share price risks.
It is understandable that downstream players hope for full retrospective pricing from China Steel Corporation in order to alleviate inventory pressure. However, the retrospective refund or reduction by upstream steel mills does not have a direct impact on overall market improvement. China Steel Corporation operates on a quarterly pricing model, with price adjustments made every three months. The key is to closely follow changes in international trends. In the past three months, international market conditions have been weak, primarily due to insufficient demand and the lack of support for prices of semi-finished steel products in China.
Changes in the Chinese market have a ripple effect on the global steel industry. Local steel traders shorting steel futures have significantly impacted the international market. The price of Chinese small steel billets hit a low of 3,300TWD per ton, and the Taiwan market is also likely to be affected. It is expected that prices in the Taiwan market will continue to decline. China Steel Corporation plans a major maintenance shutdown in the third quarter, but the focus for the future is how to deal with the disruption caused by low-priced wire rods. Retrospective pricing is not the real issue.
Noteworthy international iron ore prices rebounded by about 4% last Friday. Market speculation suggests that this may be related to the news of China’s issuance of 5 trillion RMB in special government bonds, although it has not been officially confirmed by the authorities. However, this news has attracted attention in Asian markets. In addition, the push for the easing of crude steel production control policies is also one of the factors driving the rebound in raw material prices.
What are special government bonds? Special government bonds are issued to respond to emergency social situations and serve specific policies and projects. They are not counted as part of the fiscal deficit. The last time China issued special government bonds was in response to the economic impact of the COVID-19 pandemic. However, real estate and urban renewal projects do not meet the conditions for issuing government bonds. But the Chinese market is ever-changing, and whether the special government bond policy will be implemented as reported remains to be seen.
Cover picture by Wang,Shang-Yi