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Could foreign pig iron gain a footing in China?

Customs data shows that annual pig iron import reached 355,900 tonnes last year and 109,910 tonnes in December took up 30.9% of the total. The uptrend continues in 2009 and hit 320,800 tonnes in March almost meeting the yearly quantity of 2008 and creating increase of 212.020%YoY. The large quantity of import that floods in is never seen before.

The pig iron import in March is 0.74% of the total production of 43.218 million in China. The impact on home market should be reckoned with.

1. Why imported pig iron finds favor in domestic mills' eyes?

Domestic pig iron price that had slumped to the lowest of 2150 CNY 225 per tonne flied dramatically to CNY 2850 per tonne at the end of February 2009, as spreading closure all over the country caused resources sharply tight.

Despite the soar of CNY 700 per tonne in three month, purchase became difficult due to limited supplies. In order to maintain performance, mills had to seek other sources. Meanwhile, battered by financial crisis, international steel industry moved dull with raw material prices plunging, making it a good opportunity to import pig iron. Therefore, some international trading companies started to procure cheap steelmaking pig iron from Japan, Brazil, Ukraine and Russia.

Domestic pig iron cost was CNY 2250 per tonne this January when import price stayed only around USD 272 per tonne CIF or CNY 2195 per tonne. Moreover, home pig iron price reached to 2700 per tonne to 2750 per tonne at that time, CNY 500 per tonne higher than import goods.

For steelmakers, to buy import resources was the best way to reduce production cost, which was the main reason for mounting import later.

2. How hard foreign goods hurt domestic market?

Considering import quantities, it surged from 20,000 tonnes a month to 300,000 tonnes a month; considering import price, it leaped from CNY 2200 per tonne FOB to CNY 2350 per tonne FOB; considering impacted regions, it enlarged from Guangdong and Pearl River Delta to Jiangsu, Zhejiang and Shanghai and then Fujian, Anhui and Hunan.

Imported pig iron has occupied 70% of market shares in above places. Besides, famous mills in the south like Baosteel, Guangzhou Steel, Hangzhou Steel and Hunan Valin Steel have directly or indirectly become consumers of imported pig iron.

It is learned that some ships have arrived at Tianjin Port and began to prevail in the north area, which will add insult to injury for home iron plants. As imported pig iron always has high quality and low price, mills in the south area implement purchase on the basis of import reference, effectively pressing the cost.

3. Could foreign pig iron gain a footing in China?

As import always takes months to arrive in China, most of traders conclude transactions in the form of futures which carries bigger risks. Purchasers always price according to home market and bear all the risks. Once a lapse in judgment of future market, they would lose their shirt.

There was a case in this February. The CIF import price increased to USD 310 per tonne or CNY 2550 per tonne which was close to home level. However, most of mills had ax or suspended restocking, making it was hardly to sell out. As domestic pig iron price is forced to decrease amid weak steel market even flooding import that is able to impact China's pig iron market for a while would impossibly have a control or lead for a long run.

May 17, 2009 13:29
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