The Truth:  Chinese HRB ex-works home price far below that of elsewhere.

The Consequence:  None.  Convergence may not occur soon.

Key points

• Even though the home-market ex-works price of Chinese hot-rolled band is far below that elsewhere, in the next six months WSD thinks that the divergence in price may widen.

• A much stronger RMB and more actions by the Chinese government to constrain exports, including reduced export tax credits and quotas on the delivery of some products to some countries, is expected to drive down Chinese steel exports by next summer.

• Due to an endemic oversupply of hot-rolled band in China in the next few years, and the tendency of the home-market price to fall to “death spiral” levels,” WSD expects a rapid restructuring of the Chinese steel industry sheet sector.  Perhaps by 2009, the pricing pattern in China will be more similar to that in the United States, Japan and Europe.

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