Agony and ecstasy for Chinese steel firms from currency moves

08:15, June 30, 2010      

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The yuan appreciation is likely to have a negative impact on the steel industry in the short term despite lowering the import costs for iron ore, industry experts said on Tuesday.

"A stronger yuan would give Chinese steelmakers greater purchasing power for raw materials due to lower import costs," said Zhang Lin, a senior analyst with Beijing-based Lange Steel Research Center.

"However, the rising yuan will hit steel product exports, as well as exports from downstream sectors like electromechanical and metal products."

"It's bad news for exports. We will have to bear the extra cost as it is difficult to pass on the same to customers for the sake of maintaining good relations," said a sales director from Anshan Iron and Steel Group.

China spent 343 billion yuan to import 628 million tons of iron ore last year. A 3 percent increase in the yuan's value, would reduce the import costs by nearly 10 billion yuan, the experts said.

"A revaluation would certainly be beneficial for iron ore imports," Luo Bingsheng, vice-chairman of the China Iron and Steel Association, said in a Dow Jones report.

However, from an export point of view, a 3 percent increase in the yuan and the removal of the 9 percent and 13 percent rebates on hot-rolled coil and cold rolled coil will reduce the competitiveness of Chinese steel products in the global market, said Zhang.

"Most of Chinese steel products exported overseas are low value-added products and have been successful because of the price advantage. Hence it is difficult to pass on the additional costs to the exporting countries, " she said.

The price of hot-rolled coil is around $600 per ton and a 3 percent increase in the yuan's value will increase prices by $20 per ton. That in turn, will mean additional costs of $400 million per year for the steel mills.

China exported 24.6 million tons of steel products last year. The country's steel exports almost doubled year-on-year in the first five months due to strong demand from Southeast Asia and South Korea.

Exports of Chinese steel products surged by 17.9 million tons in the first five months, up 127 percent from a year earlier, according to customs data.

Some industry insiders said the yuan appreciation will also push the steel industry to adjust restructuring moves and focus more on improving the technical value of products.

Source: China Daily


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