Prices of finished steel have been falling since July due to seasonal slow demand. Prices of rebar (HRB335, 20mm) dropped to RMB 259/mt in July, down 5% from June levels, and prices of hot-rolled plates (SS400/SPHC, 4.0-10.0mm) fell to RMB 232/mt, down 4% from June. Both market players and traders were pessimistic, and acknowledged that price declines from weak domestic demand would continue for another month or so. In this context, domestic steel mills were looking for ways to reduce inventories, putting a high priority on exports.

According to CBI sources, export prices for domestic rebar were USD 1,020/mt (FOB), while domestic prices were USD 734/mt. Export prices of hot-rolled products were USD 980/mt (FOB), with domestic prices at USD 797/mt. CBI calculates that exports of rebar will enjoy a RMB 462.4/mt profit after subtracting export taxes, transportation fees, and other charges, but would result in no profits if sold domestically. Hot-rolled products could attain a profit of RMB 292/mt from exports but only losses if sold domestically.

In this environment, CBI believes increasing exports is the best way for domestic steel mills to increase profits and avoid financial exposures from weak domestic demand, and that mills will likely lower their prices to stimulate domestic demand as international markets are also in a slow demand period.