Global Fastener News

China Export Rebate May Drop Again; Hex Bolts Up 21% Thus Far During 2007

John Wolz

When China cut its export rebate to fastener manufacturers from 13% to 5% on July 1, 2007, the question was would prices jump the full 8% or would market forces challenge potential price hikes.

Two months later importers report prices are up the full 8% or more.

In addition, the remaining 5% VAT may be dropped by the Chinese government within days or months and the latest price quotes are headed up again.
On August 18, Bao Steel in China announced a 7.2% steel price increase for fastener manufacturers. Bruce Darling of Porteous Fastener Co. calculates that could lead to a 3% to 4% increase in fastener prices. “Expect more increases in the coming weeks,” Darling predicted.

Even before the VAT reduction a 1/2×4 Hex Bolt was up 9% FOB between January 2007 and mid-June this year when price quotes began anticipating the first drop in the rebate the Chinese government has given on many exported products, Darling reported.

Since mid-June prices had risen another 8% and as of September 4 the August steel situation and other factors upped prices another 4% for a total of 21% thus far in 2007.

A 1/2 inch flat washer zinc edged up 2.5% between January 2007 and mid-May. The increase was less than hex bolts because more scrap steel is used in washers.

By mid-June the VAT change drove washers up 5% and there was another 5.4% increase as of the beginning of September for a total of 12.9% thus far during 2007.

In addition to the rebate reduction, Jikyoon Park, director of purchasing for XL Screw, noted that there is a shortage of wire rod driving up steel prices in China.

The latest quotes for fasteners are up 5% to 10%. “It”s going crazy,” Park observed. “People are panicking and increasing prices.”

An exception to the price increases is stainless, where costs are down slightly due to a drop in the price of nickel in the past two months, Darling noted.

No Alternatives

Taiwan can”t easily return to low carbon products and compete with China. Taiwan”s main steel supplier, China Steel, has reduced the tonnage of low carbon products.

Only some of the smaller manufacturers in Taiwan still produce low carbons fasteners, Park said.
“Taiwan has little reason to move their prices,” Darling pointed out.

“They just don”t have the capacity to make low carbon products due to wire supply and because they have retooled their plants to make specials.”

Nor do Asian suppliers outside China and Taiwan have the capacity for the high volume of China. Plus China imposed an export tax on steel going to other Asian countries. Other countries don”t have the volume of ocean freight containers to be competitive with China.

No Change in Q4 China Steel Prices for Taiwan Fastener Manufacturers

Bar and rod prices will be unchanged in the fourth quarter of 2007 for Taiwan fastener manufacturers, China Steel announced.

Among seven products, China Steel is raising prices only on steel plate and electric sheet.
Fastener World magazine reported the average rise for the seven products “met the market expectation.”

Many midstream and downstream fastener suppliers attending the Q4 price announcement meeting, Fastener World reported.

“CSC pointed out that although its domestic price was already lower than current international market price, CSC decided to increase price of steel plates and electrical sheets only to respond to the recent short supply and strong demand worldwide. In order to look after the competitiveness of local steel downstream industries in the global market, considering steel price in Mainland China was still low due to over-production, CSC maintained the price level of 3rd quarter for most steel products in the 4rth quarter,” Fastener World reported.
CSC posted a 57% increase in Q2 profits. Net income rose to NT$13.1 billion (US$396 million) in the three months ended June 30, compared with NT$8.37 billion a year ago, according to Bloomberg. Half-year sales increased by 25% to NT$100.2 billion. First-half net income rose 89% to NT$26.2 billion.

CSC is boosting capacity and increasing prices to meet demand from shipbuilders and building companies in Taiwan, where the economy has grown faster than expected.

Arcelor Mittal, the world”s largest steel produce reported a 50% jump in Q2 profits after increasing prices in the US and Europe. POSCO reported 55% profit growth and China”s Baosteel first half net profits were up 80%.

Taiwan Fastener Manufacturers Urged to Develop High Value-Added Products

T.Y. Huang, CSC”s second division sales leader, urged Taiwan fastener manufacturers to concentrate on high value-added products as steel price increases can be expected at the beginning of 2008. CSC will set up a new evaluation system to allocate steel to manufacturers based on R&D ability, product quality and pricing.

T.C.Tsai, vice chair of the Taiwan Industrial Fastener Institute, also encouraged members “to take this great opportunity to readjust the pace and embrace the coming challenges though under the vicious competitive environment.”

Tsai said CSC “could have increased prices but did not do so in order to lighten the burden of the industry.”

Although both wire drawing and press welding industries wanted CSC to increase prices which benefit them, China Steel maintained the price for local midstream and downstream industries.
W.Z. Su, China Steel”s sales director, told Fastener World that China is facing production cost increases due to labor, environmental protection and land in addition to the reduced government rebate for exports, currency exchange and interest rates and labor shortages.

CSC predicted steel supply in Asia will be tight with increasing prices due to several causes.
Some re-rolling mills” production was under constraint due to the high price of material such as billet; Posco Korea is undergoing a mill maintenance series; and the price of steel from China has increased due to government policy to reduce exports. Those conditions might lead to U.S. and Japanese steel mills increasing prices for Q4 delivery, Su added.

The China reduction in export rebates has spurred orders taken by Taiwan firms.

“Up to July this year the export quantity of fasteners from Taiwan was just about the same as last year, but the total value increased,” Fastener World reported. “This was a good sign because it meant there were more value-added products.”

CSC vice president T.H Chen emphasized that “it is not a long-term solution to keep prices unchanged.”

From January to June the average export price from Taiwan was US$2.329 per KG and while China was US$1.083 per KG. From January to May, total export quantity of China was around 1.5 million tons and Taiwan was around 600,000 tons.

“It is clear that China wins on quantity and there is no way for Taiwan fastener industries to compete with China over price,” Chen advised.
Starting from next year, CSC will evaluate the downstream customers and give priority to customers who produce high value-added products, Chen explained. Customers who only produce lower value fasteners will get less supply. �2007 FastenerNews.com