Chinese Stainless: Good News for Consumers, Bad News for Producers

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China, the world’s largest producer of stainless steels, is adding capacity so quickly that supply is exceeding demand in the domestic market, and China will become a net exporter next year. Current predictions suggest China may have 500,000 tons available for export next year and 1 million tons by 2010. Meanwhile, European steelmakers are lobbying the Commission to impose tariffs on Chinese steel imports following a massive surge in general steel products flooding the European market over the last few years. European producers fear the end of the construction for the Beijing Olympics will result in even more material coming onto the market. This increased supply is dampening attempts by other Asian and European Stainless Steel producers to raise prices. The combination of lower nickel prices and greater availability of Chinese priced material will mean consumers can expect prices to fall in Q1 and Q2 2008. October prices in Asia were already the lowest since September 2006. The extent to which this will effect to the U.S. market remains to be seen and will in part depend on the U.S. dollar going forward. The current weakness has reduced imports of all basic commodities and provided a boost for domestic producers. It is likely they will take advantage of this to maintain prices even if demand slackens as the economy slows. Weak currency or not, the U.S. consumer should still benefit next year from a worldwide surplus of stainless steels. If nothing else, it will dampen the rise in raw materials costs such as ferrochrome, a key cost ingredient in stainless steels.

–Stuart Burns

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