China rebar export price index an efficient tool for highly competitive market

Amid calls for more independent, third-party references in a highly competitive international market for steel products, Metal Bulletin has upgraded its weekly fob China rebar price assessment to a daily index.

Since last year, China’s steelmakers have been under a lot of pressure when it came to their steel export business, with volumes experiencing continual drops.

The country’s finished steel exports have been falling every month in 2017 on a year-on-year basis, according to Chinese customs data.

“My company’s exports will drop at least 10% this year compared with 2016 due to competition from other countries,” a long steel export trader based in Tangshan, China’s steel production hub, said.

Since late last year, Turkey, India, Russia, Ukraine and Taiwan have muscled in on Southeast Asia and East Asia, two major markets for Chinese rebar.

This was due to China’s export prices being higher than the other suppliers in most cases, according to market sources.

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“Buyers always use our competitors’ offers as reference when asking for lower prices for Chinese rebar,” the export trader in Tangshan said.

On the other hand, China’s strong domestic steel market resulted in Chinese exporters being unable to provide buyers with too low a price.

Their inability to see eye to eye led both parties to look elsewhere for means to justify the prices they are happy with, market participants said.

This is where a transaction-based fob China rebar export price index – prepared by an impartial third party such as Metal Bulletin – comes in, to offer a standard number that both sides could use as a reference.

“Such an index would be more convincing than the price information we collect from the market,” an export trader in east China said.

An index also acts as a tool for market participants to hedge their risks.

“When participants want to sign a forward contract or long-term contract, they can use the average of an fob China rebar export price index over a certain period of time in the future. That will help alleviate the concerns of possible futures losses for both buyers and sellers,” Metal Bulletin’s index manager for China, Karen Shi, said.

Neutral reference
Metal Bulletin’s fob China Rebar Index reflects daily transaction levels in the country’s export market for the long steel product.

The index includes both sell-side price information in China as well as that on the buy-side abroad.

To ensure that the index captures the market as accurately as possible, actual transacted prices and tonnage are accorded the highest weightage, in line with Metal Bulletin’s robust methodology; offers, bids and market participants’ estimates of where they think prices should be are assigned the minimum weightage.

“If it’s [listed] on a western exchange, we will support it and seek to supply access to whatever our clients want … if they launched HRC and steel rebar contracts, then it would be easy to plug it in and offer to our clients,” Jeremy Goldwyn, the md of futures broker Bands Financial, said.

“If it’s [listed on] SGX, LME or HKEX and [is] thus a new contract on an existing infrastructure, we can launch it and offer it quickly and the clients can trade it,” he said, referring to the Singapore Exchange, London Metal Exchange and Hong Kong Stock Exchange.

“The Chinese would arbitrage Shanghai Futures Exchange rebar against a western contract,” he added.

Down, but not out
Despite seeing a drop in export volumes, China continues to have a big influence on the global rebar market.

“Although long product exports for construction applications, such as rebar, have fallen off a cliff so far this year, there is every chance that as Chinese demand slows down and then collapses as usual through the winter months, exports of Chinese bar could come back with a vengeance with huge implications for seaborne bar, billet, and even scrap prices,” Alistair Ramsay, the research manager at Metal Bulletin Research, said.

“Countries that didn’t impose anti-dumping duties still need to import from China because other suppliers don’t have the capacity to meet the demand of buyers there,” a second export trader in east China said.

“Meanwhile, other suppliers usually follow China’s prices as China is the largest producer and exporter of rebar,” he said.

Buyers typically keep a close eye on rebar prices in China’s domestic spot and futures markets, in addition to those in the export market, before deciding where to buy the product from and how much to pay for it, market sources in Southeast Asia have said.

Uncertain outlook
Since early this year, market participants had speculated about the possible removal of a 13% export tax rebate for chromium-added rebar from time to time.

“If the rebate is removed, China’s export prices will rise. The higher prices could weigh on buying interest temporarily,” the trader in east China said.

Meanwhile, market participants largely have a more optimistic outlook of the market for Chinese rebar.

“Other suppliers’ prices are also increasing and they have narrowed the gap with China’s prices,” a third export trader in east China said.

For instance, China’s rebar export prices had been higher than those of its competitors, such as Turkey and the CIS region, earlier this year. But since late June, prices from all three regions started to experience a continual rise.

In recent weeks, the gaps between the prices of rebar from these three suppliers have got smaller and smaller.

During the week ended September 15, for instance, the average export price for Chinese rebar was $567.50 per tonne fob; that in Turkey was $547.50 per tonne fob; while that for the CIS region was $545 per tonne fob.

As such, buyers have started to consider booking materials from China in their procurement plans in the past few weeks, market sources said.

Meanwhile, China’s rebar producers who are seeing their highest profit margins in a number of years might start to provide discounts for export contracts as the country’s domestic market loses its strength towards the year-end, according to some market participants.