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The shift from selling on an actual weight basis will allow it to streamline its pricing policy in north China with those in the eastern part of the country, and give it a better chance of penetrating the market in the latter.
Mills that sell rebar on an actual weight basis have to weigh the material before calculating the final price. But those that sell on an estimated weight basis conduct their sales by using an agreed weight for each length of rebar, depending on its size.
Rebar sold on an estimated weight basis is usually lighter than its agreed weight, but the difference must be within an acceptable limit set by the government.
According to the latest rebar standards released by the government in May 2013, the allowed weight difference for 8-12mm diameter rebar is 7% while that for 14-20mm diameter rebar is 5%. For 22-40mm rebar, the difference must not exceed 4%.
Hebei Steel’s move will not be too beneficial for its distributors.
This is because they buy rebar from the steelmaker on an actual weight basis but typically sell the material to end-users on an estimated weight basis. The practice allows them to earn some additional profits, market participants said.
Hebei Steel holds the biggest market share for rebar in north China, but it trails behind several other steelmakers in east China.
“This change will allow Hebei Steel to sell its products out of north China,” a Beijing-based analyst said.
“Right now, it’s inconvenient for Hebei Steel to sell its products to east China due to their different pricing methods,” he said.
The eastern Chinese market conducts sales on an estimated weight basis.
“The change will make their negotiations smoother in the future,” the analyst added.
Hebei Steel will begin selling rebar on an estimated weight basis from February 1.