Over on MetalMiner, Stuart Burns recently offered up his prognostications for what to expect in the metals markets in China in 2008. When it comes to China -- and China metals exports, especially -- forecasting pricing is not just as simple as understanding supply and demand. Politics and trade matter. According to Stuart, "It looks like China will be making further changes to its export rebate structure by the start of the new year, according to Susan Schwab, U.S. trade representative, after trade talks with Chinese authorities." Stuart's readings on this and related changes suggest that "steel products in particular are set to become more expensive from the turn of the year, just as massive steel manufacturing investments in China begin to come on stream increasing capacity." But above all, look for volatility in pricing rather than a one way rising price ticket: "Expect the rollercoaster ride for the steel markets to continue in 2008 as supply and demand in different product sectors drive price increases and decreases between markets."
As I look at the combination of what appears to be an ever increasing local demand for metals products in China, not only for building and infrastructure creation but also for products sold for domestic consumption (e.g., consumer appliances), it makes sense that we could continue to see metals prices rise even though domestic demand for Chinese goods -- at least in the U.S. -- will slow as the China price continues to increase. But to get the most bang for their global sourcing buck, the key for China sourcing practitioners will be to understand whether or not price increases from suppliers are justified and when to invoke de-escalation clauses in contracts in falling price environments. After all, even in highly volatile commodity environments, knowledge is power.