The Chinese steel industry losing some of its competitive edge According to UK based steel market analysts, MEPS in its latest report in China Steel Insight. Ex-mill steel prices (excluding taxes) in April 2011, were close to their peak values in all countries.

Since then, selling figures have been in gradual decline. The price reductions in China, however, have been less than those in other parts of the world. As a result, the Chinese steel producers have lost some of the price advantage that they enjoyed in spring last year.

To illustrate this point, in the twelve months period to April this year, the MEPS Chinese All Products Composite steel price declined by $US39/t (6.3%). In the same time span figures for North America fell by $US154/t (15.2%). The MEPS composite number for Asia, excluding China, dropped by $US68/t (8.0%) and EU by $US114/t (12.4%).

It is easy to see why many international enterprises have been anxious to transfer their manufacturing facilities to China. The combination of low labour and steel costs made it a very attractive proposition. In the past twelve months, the cost benefits for steel procurement in the country have been eroding. A flight from China by western manufacturers is unlikely but, if the current steel price margins persist, they may give further consideration to the advantages of moving manufacturing units in the future.

No significant steel price erosion is anticipated in the short term. The steelmakers in most parts of the world are suffering from low profitability or in many cases losses at current price levels for carbon steels. Only a reduction in iron ore and coking coal costs could encourage the mills to make further substantial price reductions. Such action would affect Chinese and other steel mills in a similar manner. Consequently, the existing selling price differentials are likely to remain in place whilst the global economic uncertainty exists.