BEIJING(Commodity Online): Against the backdrop of lower output of steel in the rest of the world , China’s exports of rolled steel products has risen 12.3% during the first nine months of 2012 compared to the same period last year. The exports rose 3 million tons to 27.36 million tons, according to MEPS International, London.

The reasons increased demand for China steel is its price competitiveness, the quality of commercial grades is now acceptable for most applications around the world and the demand from the countries with a shortfall in supply continues to grow.

These nations have obtained their requirements in the past from Chinese steelmakers, and are expected to continue purchasing from this source. The competitive price situation will come as no surprise to MEPS subscribers to China Steel Review. Significant differences between domestic prices in China and its main trading partners have been highlighted for most of this year.

Average rolled steel prices, in the main Asian consuming nations, have been $US200 per tonne above those in China for all the year. In recent months, the figure has moved above $US250. Such differences provided ample opportunities for the mills in China to cover all the costs of administration, freight and local transport to their foreign customers.

For most of 2012, the MEPS ‘all products’ rolled steel prices for North America and China showed an average differential of $US300 - mainly created by declining prices in the latter country. With such wide discrepancies, steel trade between the two regions has increased, year on year.

The picture in the European Union has been quite different so far in 2012. The differential between the MEPS composite price in the two regions has been below $US200 per tonne. This has proved to be too small for many traders to complete deals. The cost of freight, local transport and administration can be covered by this amount and regular deals are being concluded. However, the extended delivery lead times and potential for falling prices in the EU has limited the number of casual deals taking place.

One thing is certain. China’s steel industry will pose a threat to producers worldwide in years to come. The steel quality risk for importers is diminishing. Chinese steel prices are the lowest in the world. China is geographically close to the growing markets in Asia. Close scrutiny of regional price differentials is essential in understanding the threat.