Chinese steel sheet market vacillating at "death spiral" levels

Versus our expectation about a month ago, the pattern of industry events has evolved as expected in these respects:

· The HRB price in China about two weeks ago fell to about the marginal cost of the average-cost producer. The steel sheet mills, as a result, are under great duress. In a recent Chinese steel industry association meeting, there was a consensus about the need to cut back output (which is happening to some extent), boost exports (also occurring), refrain from subsidizing the trading companies (probably not possible) and boost demand (in the hands of the gods).

· Sales by offshore mills’ of steel sheet products in China have been slow, at best, because of the low price in China (only about $300 per metric tonne for HRB).

· The Chinese steel mills have reduced their export price for HRB on the world export market by about $25 per tonne. The quote, FOB the port of export, is now about $375 per tonne in some instances.

· The world export price for HRB has come down by about $25 per tonne. WSD now places the world export quote, FOB the port of export, at $375-450 per tonne, with the Chinese steel mills now at the bottom end of the range, and Tier I mill at about the $450 per tonne mark.

· Steel prices have remained solid in the EU home market, with talk about further increases later this year and/or early next year.

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