Demystifying Steel Prices: Terms and Calculations Explained

Terms related to steel price

Steel has become a ubiquitous material in our modern industrial landscape, playing a crucial role in construction, manufacturing, and infrastructure development.

For steel manufacturers, traders, and end-users, understanding the intricacies of steel trade is paramount, with steel pricing being a focal point of daily market analysis and strategic decision-making.

However, many industry participants incur financial losses due to a lack of comprehensive understanding of the terminology related to steel prices when engaging in steel transactions. This knowledge gap can lead to misinterpretations of market trends, contract terms, and pricing structures.

Consequently, there is a growing demand for accurate and detailed information on “what are the terms related to steel prices?” across the steel industry value chain.

Drawing from extensive experience in metallurgy and steel market dynamics, I can elucidate that there are primarily 12 critical terms associated with steel prices. These terms encompass various aspects of pricing mechanisms, market indicators, and trade practices that are essential for navigating the complex steel market landscape effectively.

Terms related to steel price

1. Weighing price

The weight-based price refers to the method of determining the weight of steel during the purchase and sale of the material. The actual weight of steel is accurately measured using tools such as a weighbridge. The price of steel that is sold based on this actual weight is referred to as the weight-based price; it is also commonly referred to as the weighing price.

2. Measuring price

In the process of steel purchase and sale, the method of determining the weight of steel is based on the theoretical weight, and the price of steel sold according to this theoretical weight is referred to as the gauge price. This measured price is also known as the adjusted price or the adjusted weight price.

The theoretical weight is calculated based on established national production standards for various types, materials, and specifications of steel. Each steel plant produces various steels according to these standards. However, these standards are not absolute and have an allowed deviation or difference, which can result in a discrepancy between the theoretical weight and the actual weight of the steels produced.

Most steel products produced by steel plants have a lower actual weight compared to their theoretical weight. For example, the theoretical weight for many types of steel is one ton, but the actual weight is typically less than one ton. As a result, the gauge price, which is based on the theoretical weight, is lower than the weight-based price.

The lower difference, also known as the negative difference, represents the difference between the actual weight and the theoretical weight of steel with a theoretical weight of one ton. It is calculated as follows:

Lower difference = (theoretical weight of steel – actual weight of steel) / theoretical weight of steel * 100%.

For instance, consider a factory that produces 25mm diameter rebar. The theoretical weight for this rebar is 1 ton, or 1000 kg. However, the actual weight measured during weighing is 0.95 ton, or 950 kg. In this case, the lower difference for the 25mm rebar produced by the factory can be calculated as follows:

Lower difference = (theoretical weight of steel – actual weight of steel) / theoretical weight of steel * 100% = [(1000-950) / 1000] * 100% = 5, meaning that there is a 5% lower difference or 50 kg lower difference in the 25mm rebar produced by the factory.

This type of theoretical weight phenomenon can occur for products such as rebar, welded pipe, seamless pipe, profiles, bars, and others.

3. Price including tax

The VAT invoice price refers to the price at which the buyer requests the seller to provide a VAT invoice for the steel products during the sales process. The VAT rate is 17%. In theory, if the buyer does not want the VAT invoice, the seller should deduct 17% of the tax from the price including tax.

However, in the domestic steel industry, the difference between the price including tax and the price excluding tax is not substantial. Typically, the seller will offer the buyer a discount of 3-4%. For example, if the current steel price is around 4000 yuan, the price excluding tax is approximately 150 yuan lower than the price including tax.

Whether or not to provide a VAT invoice is commonly referred to as whether or not to provide a ticket. The price including tax is also known as the ticket price, and the price excluding tax is referred to as the ticket price without tax.

4. Acceptance rate

The acceptance bill price refers to the method of payment used during the purchase and sale of steel, where the buyer does not pay cash to the seller, but instead pays in the form of an acceptance bill. The seller incurs interest expenses when discounting the acceptance bill, which is why the acceptance bill price is generally higher than the cash price.

The range of the difference can vary depending on the discount rate of the bank acceptance and the length of time for the acceptance bill, which is typically divided into one-month, three-month, and six-month acceptance.

5. Self-collection price

It refers to the price at which the buyer hires a transport vehicle to pick up the goods in the seller’s warehouse during the purchase and sale of steel.

6. Direct price of steel plant

It refers to the price when the buyer directly orders from the steel plant and delivers it to the place set by the user without spot resources.

7. Advance payment

The advance payment price refers to the practice where a steel trading company makes a pre-payment to a steel factory or large-scale trader and subsequently purchases the required steel based on their future demand. The general price of steel purchased through advance payment is typically several tens of yuan per ton lower than the cash price.

8. Bulk discount

When a buyer places a large order for a specific type of steel, the seller may offer a discount of several tens of yuan per ton, depending on the size of the order.

9. Listing price

The listing price policy refers to the pricing strategy used by steel mills or traders to sell certain steel products. In practice, there may be different levels of preference applied in the sales process.

Some steel plants adopt a sales method where they set the listing price for the next month’s steel sales at the end of the current month. The actual settlement price for all types of steel is determined based on the orders and collections made at the end of the current month, using the listing price set at that time.

10. Settlement price

Some steel plants have a sales method where they establish the listing price for the next month’s steel sales at the end of the current month. This listing price is then used to determine the actual settlement price for all types of steel based on the orders and collections made at the end of the current month.

The settlement price represents the actual cost price of the monthly purchases made by steel traders.

11. Market price

The steel sales market has a variety of transaction prices. The prices displayed on this website are market prices, which do not include delivery fees, short-distance shipping costs, short-term funding occupation fees, or other expenses.

12. Site procurement guide price

The site procurement guide price, also known as the on-site procurement guide price, is a unique pricing format offered by this website. It is calculated based on the market price, plus the delivery fee, short-distance shipping cost, and short-term funding occupation fee.

Rebar Trading Methods: Adjustment vs. Weighing

In the domestic steel trading industry, two primary methods are employed for determining settlement weight: adjustment and weighing. The adjustment method calculates the settlement weight by multiplying the steel’s overall dimensions by its nominal density. In contrast, the weighing method determines the settlement weight through actual physical measurements using calibrated scales.

While weighing is generally considered more accurate and effective in regulating steel trading practices and facilitating macro-control of the steel industry, the adjustment method remains prevalent due to its simplicity and the absence of weighbridge requirements.

The national standard for rebar dimensional tolerances specifies the following limits:

• 6-12mm diameter: ±7%
• 14-20mm diameter: ±5%
• ≥22mm diameter: ±4%

However, industry practices often deviate from these standards, particularly among smaller steel mills. These producers frequently manufacture rebars with dimensions below the national standards to remain competitive. Their higher production costs compared to larger mills necessitate this strategy, as adhering strictly to national standards would increase their market prices by approximately 60-70 yuan per ton, significantly impacting their competitiveness.

The prevalence of the adjustment method in markets like Shanghai indirectly supports the continued operation of smaller steel mills. A shift to widespread weighing practices would likely expose non-compliant products and potentially force many of these smaller operations out of the market. This aligns with the state’s macro-control objectives for the steel industry, which aim to phase out outdated and inefficient production capacities.

Implementing weighing as the standard practice would have several implications:

1. Increased accuracy in trade settlements
2. Improved quality control and adherence to national standards
3. Reduced profitability for mills producing out-of-specification rebars
4. Accelerated consolidation of the steel industry, favoring larger, more efficient producers
5. Enhanced ability for regulatory bodies to monitor and control steel production and trade

The transition from adjustment to weighing represents a significant shift in the industry, balancing trade practices, product quality, and broader economic policies in the steel sector.

How to Convert Between Steel Weighing Price and Adjustment Price

The relationship between weighing price and adjustment price is governed by the weight deviation factor. The formulas are:

Adjustment Price = Weighing Price * (1 – Weight Deviation)
Weighing Price = Adjustment Price / (1 – Weight Deviation)

In practice, the actual thickness of steel products is often less than the standard thickness due to manufacturing tolerances. Consequently, the theoretical weight calculated using standard thickness exceeds the actual weight. This discrepancy results in the theoretical price of a product being lower than its weighing price.

For instance, consider a hot-rolled steel plate with a standard thickness of 2mm but an actual thickness of 1.82mm. For a nominal 2-ton plate, the actual weight would be 1.82 tons. If the adjustment price is 4050 yuan per ton, the corresponding weighing price would be approximately 4450 yuan per ton (calculated as 4050 / (1 – 9%) = 4450.45 yuan per ton, assuming a negative weight tolerance of 9%).

Generally, weighing is used for weight verification and results in a higher price, while adjustment involves a higher theoretical weight and yields a lower price. When the actual volume of steel is less than the theoretical volume (negative volume deviation), the adjusted price will be lower than the weighing price. Conversely, when the actual weight exceeds the theoretical weight (positive volume deviation), the adjusted price will be higher.

Different steel products are typically priced using different methods. Steel plates, pipes, and H-beams are usually priced using the adjustment method, while coil products such as color-coated steel and galvanized sheets are typically priced by weight.

To illustrate, consider a scenario where the weighing price is 4819.28 yuan per ton, the adjusted price is 4000 yuan per ton, the weighed weight is 0.83 tons, and the adjusted weight is 1 ton. The weight deviation for rebar can be calculated using the formula:

Weight Deviation = (Actual Weight – Theoretical Weight) / Adjusted Weight * 100%

This understanding of pricing methods and weight deviations is crucial for accurate cost estimation and quality control in steel manufacturing and procurement processes.

Negative deviation table of steel

Harm of adjustment price of building steel

According to the market, the adjustment in the price of construction steel poses the following risks:

1. The construction steel for weight adjustment seems cheap, but it is actually much more expensive than that for weighing.

For instance, the current market price for 12-14mm steel bars is 3030 yuan per ton. However, there is an adjustment in price to 2940 yuan per ton, making it 90 yuan cheaper per ton.

However, due to the significant discrepancy in the adjustment price for reinforcement steel, a steel plant’s lower deviation in reinforcement price can reach 9%. This means that the actual weight per nominal ton of reinforcement is only 910 kg, which translates to a price of 3230 yuan per ton when calculated based on actual tonnage. This is 200 yuan per ton more expensive compared to the weighted reinforcement, rather than 90 yuan per ton cheaper.

2. Building steel weighed by calculation wastes energy.

Some companies employ negative tolerance rolling, which often results in a yield of construction steel exceeding 100%, and in some cases, even reaching 110% or higher. This means that 1100 kg or more steel is rolled from 1000 kg of steel billet.

While this may seem like a more energy-efficient process, it is not. For example, if 1000 kg of steel billet is used with zero tolerance rolling, 100 pieces of steel can be produced. However, with negative tolerance rolling, 110 pieces or more can be produced, but the additional 10 pieces of steel will consume extra energy.

3. The rebar price in area a is the lowest in the country through adjustment.

In area A and its surrounding steel market, rebars are priced based on weight, which is why rebars with lower deviations produced by numerous small steel mills in the north have been flowing into the Shanghai market. On the other hand, in area B, rebars are priced based on their actual weight, which often results in higher prices compared to area A.

It is clear why some northern steel plants are transporting steel bars to area A, where the sales price is lower than in the local area. However, wire trading is only priced based on weight, so the price of wire in area A is not lower and in some cases, even higher than in area B. This disrupts the normal market order.

4. Through adjustment, some illegal small steel mills took advantage, while the large steel mills suffered losses.

The iron and steel industry is characterized by economies of scale, meaning that only with a certain level of economic scale can costs be controlled and reasonable profits can be achieved.

However, illegal small steel mills lack the economic aggregate, technical capabilities, and management systems to compete with large steel mills. As a result, they take advantage of deviations in order to reduce costs. In contrast, large steel mills produce products in strict adherence to national standards, so there is a minimum limit to their costs.

On the other hand, small steel mills reduce costs by cutting corners, which negatively impacts both large steel mills and users. This behavior disrupts the market and undermines fair competition.

5. Adjustment is not only an air raid shelter for illegal small steel mills with poor quality steel, but also a sunshade for corrupt activities and a hotbed for bean curd dregs.

Since the weight is not accurately measured through weighing, it is impossible to ensure that the weight is sufficient, and there is no standard for determining whether the weight is more or less. This provides opportunities for off-the-books trading.

Recently, the roof of a Russian swimming pool called the “dolphin” collapsed, and reports suggest that poor workmanship and the use of low-quality steel may have been the primary causes.

According to feedback from users, the negative deviation of small-sized reinforcements in area A is particularly high, especially for the 10-14mm small-sized reinforcements used as auxiliary reinforcements, most of which have a negative deviation of over 10%.