SHANGHAI, June 25 -- China's steel prices stagnated again this week as the market braced for a downturn on expectations the yuan will firm and on the government's removal of export rebates.
Construction steel prices in Shanghai moved up slightly to 3,790-3,810 yuan ($556.4) per tonne on Thursday, up 0.3 percent from last week, industry consultancy Mysteel said.
Rebar contracts for October delivery on the Shanghai Futures Exchange closed at 4,101 yuan per tonne on Thursday, down 0.3 percent from last week.
"Slumping housing prices will certainly rein in new operational rates for the housing sector, while steel output has remained at high levels, intensifying pressure on mills and traders," said a Shanghai-based trader. "Therefore, we expect steel prices to fluctuate at low levels."
"Steel prices will not be able to climb largely because the domestic market is suffering from oversupply and weakening demand, especially from the housing sector," said a steel analyst with BOCI Futures.
Chinese small steel mills are slashing production to some extent as demand from downstream industries shrink.
DOUBLE WHAMMY ON EXPORTS
China's finance ministry has decided to scrap a 9-percent rebate of value-added tax on some steel products including the export-dominated hot rolled coils, taking effect from July 15.
The move surprised and disappointed steel mills and traders who had expected the removal to be delayed as exports were already suffering a slowdown due to a lack of competitiveness.
"Our export orders have sharply fallen now without the support of rebates, while the rising yuan will also make our exports more expensive," said a steel exporter in Shanghai.
Steel product exports declined 58.5 percent in 2009, and traders are concerned that the gradual recovery since December last year could be derailed by further currency appreciation.
China has promised a more flexible yuan currency mechanism, and while gains have been meagre so far, financial markets expect the currency to appreciate in the long term.
In addition to a rising currency, China's steel exporters have been subject to a series of anti-dumping measures by the United States, which cited subsidies in the form of lowcost loans, cheap land and export tax incentives.