China was a net steel product importer in 2003 with 36.4 million tonnes of steel product imports, but by 2007, it had become a net exporter with 62.65 million tonnes of steel product exports.
In June 2007, the government levied export taxes of between 5% and 15% on more than 80 types of Chinese steel product exports, in order to limit steel products from flowing out of the country. By controlling the outflow of steel products, the government aimed to reduce the impact on the domestic environment and resources, as well as to upgrade the domestic steel industry. Although the taxes had some effect, rising global inflation continued to bolster Chinese steel product exports in the H1 of 2008. For the whole of 2008, China's steel product exports stood at 59.19 million tonnes.
However, the outbreak of the global economic crisis in the second half of 2008 severely impinged on China's steel product exports. China exported 3.17 million tonnes of steel products in December 2008 and in March 2009, that monthly figure fell to 1.67 million tonnes which caused China to once again become a net steel product importer.
On April 1st the government raised value added tax rebates on exports of steel products including cold rolled steel, silicon steel and stainless steel to 13% but policies on other steel product exports were left unchanged and some steel products still had export taxes of more than 10% levied against them. In such economic times, a country would not normally impose tax on steel product exports, and may even provide more rebates. Currently, the Chinese government is still levying taxes of between 10% and 13% on exports of construction steel, section steel and certain shipbuilding steel. Due to significant falls in exports, only four domestic shipbuilding steel producers are still in operation.
The analysts said that “The rapid devaluation of many currencies across the globe has also impeded Chinese steel product exports. Therefore, I think it is imperative that the government further adjusts taxes to boost steel product exports to help domestic steel mills better weather the economic downturn.”
How would the Malaysian steel producers fare in the face of competition from Chinese steel since the liberalization of import and export of construction steels and removal of ceiling prices for bars and billets in May 2008. Even if our local producers can compete against Chinese steel, is the increased demand sufficient to absorb the increased supply. We must bear in mind that all these companies had increased their production capacity significantly in the past 2 years. In addition to normalized demand, the steel producers are expected to benefit from more infrastructure development to be carried out under the fiscal stimulus program.
Nevertheless, the stock market has begun to price in a strong recovery for the steel sector, judging by the sharp run-up in their share price. I have tabulated the share price performance of a selected steel producers (i.e. Annjo, Kinstel & Lionind) for a close look. The weekly chart of these stocks are presented below.
Chart 1: Kinstel's weekly chart as at 8/5/2009 (Source: Quickcharts)
Chart 2: Annjo's weekly chart as at 8/5/2009 (Source: Quickcharts)
Chart 3: LionInd's weekly chart as at 8/5/2009 (Source: Quickcharts)
In the US, the steel producers have also seen a decent gain in their share price. The Dow Jones US Steel ('DJUSST') index has just crossed above its strong horizontal resistance at the 200-point level.
Chart 4: DJUSST's daily chart as at 8/5/2009 (Source: Stockcharts.com)
After a hefty gain, I believe that the steel producers' share performance would be more moderate going forward. I see the near-term upside gain of 10-15% as possible (due to strong momentum) but price consolidation is likely to set in thereafter.
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