Chinese Market Price May Drop by Rising Yuan Rate

Chinese steel export may be slowed down by the announcement of People’s Bank of China on Sunday to relax currency control on yuan. In addition, Chinese VAT refund rate on exports is expected to be lowered by the government in a short term. Chinese steel export has recently increased due to slowdown in Chinese domestic market. Excess steel inventory may lower Chinese domestic market price more if Chinese steel export decreases.

Chinese industries’ export competitiveness weakens if Chinese yuan rate rises. Yuan rate is expected to be raised slightly and the impact on Chinese export would be small. Meanwhile, Chinese Department of Commerce announced at a monthly press conference of June to readjust VAT refund rate on exporters. Chinese exporters may increase steel export before the measure comes effective but, in a medium term, the export should be slowed.

China Iron and Steel Association announced on Monday the market price for hot rolled coil in Beijing decreased by 30 yuan to 4,320 yuan (60,000 yen) per tonne in the third week of June compared with the previous week. The market price for cold sheet decreased by 250 yuan to 5,850 yuan. Hot coil price downed by 560 yuan from the recent peak in the second week of May while cold sheet price lowered by 450 yuan.

Chinese steel export was 4.94 million tonnes in May, which increased for 3 consecutive months. The export expanded by 2.3 times for January-May from the same period of 2009. Increasing export affects international steel market price. If Chinese export decreases, Chinese domestic market price would drop. This should indirectly impact international steel market price, too. Chinese government announced to close old steel production equipment at total 30 million tonnes within this year to resolve excess capacity.