Chinese Fastener Prices Poised to Jump

John Wolz

Insiders say the Chinese government export rebate to fastener manufacturers will drop July 1, leading to higher prices for fasteners shipped to other countries. \ The exact rebate change and date are “uncertain,” but some suppliers are “voiding” price lists until the change is officially known.
Several U.S. fastener buyers acknowledged the “rumors,” but added that all indications are that the rumors “do seem validated” based on what factories are hearing from regional government.
Combined with increasing ocean and Intermodal freight rates plus domestic freight rates, energy costs, steel prices rising 10% to 20% this year and the change in the value of the U.S. dollar, imported fastener prices can be expected to jump in the next few months.
“Our inside information is that the rebate will drop from 13% to 5% not later than July 1st,” J.P. Park, director of purchasing for XL Screw, told FastenerNews.com. “That is not official from the Chinese government,” Park emphasized.
Thus a fastener exported by a Chinese manufacturer for $1 would yield a 5-cent tax rebate instead of 13 cents. “All of a sudden 8% will disappear,” Park explained.
Barry Porteous of Porteous Fastener Company explained that the VAT rebates have been in place for years and various products have differing percentage rates that the government pays to the exporter as a “kick back” to encourage exports.
One Chinese fastener manufacturer explained to customers that it “may take a short period for the market to fully understand the developing situation of China.”
Fastener manufacturers are shipping their inventories as fast as they can in anticipation of a July 1 change, one source said.
Once the Chinese government takes action, the “free market will come into play” on pricing, Park said. China”s manufacturers may raise prices 6% to 10%.
Other countries may use the opportunity to become more competitive with the Chinese by holding their prices or may try to take advantage of the higher prices to raise their own prices.
“Taiwan is hungry for business,” Park observed. “Taiwan would love to get business back from China. Taiwan prices are close enough to China that the rebate change could make Taiwan competitive especially in small screws.”
Bruce Darling, vice president for materials at Porteous Fastener, noted that other countries cannot just ramp up production. “The capacity is extremely limited in Vietnam, Thailand and Malaysia and most have to import wire rod for their production. Local steel mill quality will not meet U.S. quality demands,” Darling explained. “The export tax recently placed on China steel exports increases the cost of imported steel for those countries.
Developing countries also have a freight disadvantage due to fewer containers shipping to the U.S., Darling added.
India has “outdated equipment and an economy that is slow to react to market opportunities,” Darling pointed out. “Lately the India steel cost has not been competitive against the Chinese producers.
Another scenario is that the rebate change could make exports less competitive and thus reduce demand for Chinese steel. That could “stabilize” steel prices and at least partially offset the rebate loss, Park explained.
Ocean freight rates are putting pressure on prices too. Though XL Screw is operating with a freight contract, Park said he is “hearing of increases of $200 to $300 per container.”

There are other reasons prices are likely to remain high, Barry Porteous pointed out. Taiwan steel prices today are 90% higher than 2002. “Demand in Taiwan is not strong, but China Steel has switched some of the low carbon production to medium carbon steel products.,” Porteous explained.
Price changes in China tend to move closely with Taiwan, Porteous observed. “China Steel prices have increased by 20% since January 2007. Demand in China is still strong spurred on by the building for the Olympics of 2008 and the Worlds Fair in 2010. Construction continues to be strong and a major user of steel products domestically produced. China has curbed its export of flat and wire rod products,” Porteous explained.
One Chinese manufacturer told a U.S.-based importer that they expect to be priced competitively. Southeast Asian countries use China”s steel, India steel prices have been in flux and Taiwan has mostly moved out of the standard fastener business.

” Reuters reported “China”s May exports of steel products stayed high at 6.17 million tons, their second highest ever after April”s record 7.16 million tons, as traders raced to ship cargo before Bejiing”s tax change.” Exports of steel products in the January to May period surged 116.7% year-on-year to 27.44 million tons, Customs said on its website (web: customs.gov.cn).
“But traders expected exports would slow down from June as buyers wait for Chinese shippers to adjust prices after Beijing raised taxes on exports of many steel products from June 1.”
“Exports will slow down. We are not receiving many orders now from abroad,” said one trading manager at a steel company, which exports long products to countries including Iran, South Korea and Indonesia.
“Both buyers and sellers are waiting to see how prices will go after domestic prices fall.”
” “In a bid to deflect pressure from major trading partners for a more rapid appreciation of the Yuan, China”s Ministry of Finance said last month that, beginning June 1, it will raise export taxes on a wide range of steel products while also imposing new taxes of 5% to 10% on other steel exports,” AFX Asia reported.
” “For the third consecutive month, China”s steel exports to the U.S. decreased in April,” according to U.S. Census Bureau data reported in Platts Commodity News. China shipped 255,603 metric tons of steel products in April 2007, or 26% less than the 345,121 mt in March. April 2007 imports from China were also 30% lower than in the same month a year ago. The current level of imports from China is significantly below the peak of 542,000 mt reported in October 2006.
“For April, the largest volume of steel imports came from Canada (523,984 mt), the European Union (373,837 mt), Mexico (285,747 mt), and then China, followed by Brazil (212,0000 mt), Japan (167,9996 mt) and Korea (157,395 mt).” �2007 FastenerNews.com