Transcript Ⅰ A good start for China`s steel industry in 2007 Ⅱ Analysis of

Development Situation of China's
Steel Industry and Strategic Thinking
on Steel Import and Export in 2007
Executive Vice Secretary-General of China Iron and Steel
Association
Chief Analyst,
Researcher
April, 2007
Qi Xiangdong
Outlines
Ⅰ A good start for China's steel industry in 2007
Ⅱ Analysis of supply and demand situation in
China's iron and steel industry in 2007
Ⅲ Development trend and strategic thinking on
China’s Steel Import and Export
Ⅰ A good start
for China's steel industry in 2007
In 2007, China's iron and steel industry have been seriously implementing the
guidelines of central economic work conference as well as the state's macrocontrol policies; using the scientific concept of development to guide the overall
development of the iron and steel industry; grasping the important period of
strategic opportunities with the vision of economic globalization to; effectively
changing the pattern of economic growth; adjusting and optimizing the
structure with efforts; enhancing resource conservation and environmental
protection; insisting on the coordination of quality, efficiency and speed of
development; making great efforts to promote the healthy development, thus
achieving a good start in the first quarter.
There are five characteristics of the steel industry development:
1
Continued growth in production, a basic
balance between supply and demand
Total of
Jan and Feb
Same period
of last year
growth
accumulative
total %
Crude steel
7425.42
6031.02
1394.4
23.1
Pig iron
7006.55
5791.7
1214.85
21
Steel
7900.81
6299.81
1601
25.4
Coke
4692.72
3805.46
887.26
23.3
iron ore
8366.35
5692.3
2674.05
47
ferroalloy
222.79
158.89
63.9
40.2
Apparent steel consumption in steel markets up to 72.96m tons in the
first two months, rose 17.4% over the same period of last year.
Crude steel apparent consumption amount to 66.82m tones, up by
13.4% y-o-y.
2 Market demand strong, imports and
exports have shown good momentum
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Steel imports up to 2.7m tons in the first two months,
a year-on-year decrease of 13m tons, or 4.6%; steel
exports as much as 8.75m tons, an increase of 5.09m
tons y-o-y, or 139.3%.
Steel exports in the first two month each was 4.38m
tones, slab exports in the two months totaled 7.12m
tones, rising 5.75 m tones year on year.
Net imports of crude steel account for 9.6% of total
imports, steel imports per day dropped 5.35%
quarter on quarter, billet exports declined 9.94% in
the same comparison.
3 Steel price return rationally, the
smaller market volatility
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Until March 30, comprehensive steel
price index in domestic market was
109.8, an increase of 4.42% compared
with the end of last year, with long
products of 95.98, up by 4.59%; with
the sheets of 116.59, up by 4.57%.
Prices at a reasonable interval.
4
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Quality and efficiency of production improved
Maintaining a high level of profits
78 big-and-medium-sized iron and steel enterprises
registered a 39.11% y-o-y growth in overall
industrial output in the first two months, realized a
1.51 times growth in tax and a 4.15 times growth
in profits
Present a good start of profit growth rate higher
than the growth in sales revenue, as well as sales
revenue growing faster than output
Losses totaling of money-losing enterprise dropped
90.17%
5 Fixed assets investment increased slightly
Macro-control policy effected
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Ferrous metals mining, smelting and rolling accomplished a
investment of 16.8 billion RMB in fixed assets for the two
months, rose 3.4% over the same period of last year, 20
percentage points lower than the fixed assets investment in
urban areas
11.262 billion RMB of investment by state-owned and stateholding enterprises, account for 71.3%; Non-state-owned
enterprises invested 4.54 billion RMB, account for 28.7%, the
proportion fall sharply
Three areas ranked top 3 in investment: Shanghai, Anhui and
Jiangsu
This is a slight increase based on the negative growth in
investment in the iron and steel of last year, shows that the
state has a effective control over the investment in fixed assets
of steel.
Ⅱ Analysis of supply and demand
situation in China's iron and
steel industry in 2007
1、China's iron and steel industry is still in the growth period, but the
growth rate will drop

In 2006, China's steel production has the trend of decline in the
growth rate. The decline has its necessity and rationality. 2007
forecasts a continued decline in steel production.

The effect of state macro-control over the steel investments has
begun to emerge. Along with the decline in investment in steel,
capacity increase weakened. No longer support the growth rate of
around 20% a few years ago.
 The 2007 is the last year which the steel industry policy stipulates
that blast furnaces smaller than 200 cubic meters, converters and
EAF smaller than 20 tones should be closed, through the elimination
of outdated equipment, related enterprises will reduce production
release of the year.
Target forecast of China's major
steel products in 2007
2006
2007
forecast
Increment
over 2006
Growth rate
over 2006
Crude
production
419m t
462m t
～ 475m t
43m t
～56m t
10.3%
～13.4％
Steel
Production
467m t
527m t
60m t
12.85%
These forecasts based on the level of production and
market demand and taken into account the national macrocontrol factors, thus bring forward the possible goals.
(steel production contains repeat materials )
2 Forecast of apparent steel
consumption in domestic markets
year
Total fixed asset
investment
（’00 billion RMB）
Crude steel apparent
consumption
（million tones）
Growth in
Crude steel
consumption
Crude steel
consumption
of FAI per ’00
%
Consumption
Prodution
Net
imports
Growth
Growth
Rate
37214
13
16977
15103
1874
3032
21.74
0.456
2002
43500
16.9
20573
18225
2348
3596
21.18
0.473
2003
55567
27.7
25858
22234
3624
5285
25.69
0.465
2004
70477
26.6
29658
28291
1367
3801
14.7
0.421
2005
88604
25.7
34157
35579
-22
4499
15.16
0.3855
2006
109870
24
39832
41878
-3446
5665
16.58
0.3625
2007
Forecast 1
129647
18
44200
46200
-2000
4368
10.97
0.3410
2007
131844
20
45500
47500
-2000
5668
14.22
0.3451
Investment
Growth
2001
Forecast 2
billion RMB
Actual figures for 2001-2004. Considering stock changes, the increased stocks of 14m t
was absorbed by actual consumption in 2006,the results in 2005 and 2006 has been adjusted.
3
International steel prices will remain high
The domestic market will be lower than the international
market price level
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According to the prediction of International Steel
Association, 2007 will have a basic balance between supply
and demand in the global steel market and will have no
serious oversupply situation providing the global economy
has continued to maintain high growth.
Steel production costs (mainly energy, raw materials, labor
costs and environmental costs) will not be dropped
remarkably, steel and scrap availability will be tight on a
phase basis, some of the world’s major iron and steel
production will adjust production in accordance with market
changes, and will support global steel prices fluctuated
between a high price accordingly without a continued
substantial downward.
The average international steel prices will remain at a
high price fluctuation range.
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Domestic market steel prices will be affected by a number
of factors, including market supply and demand in the
domestic market, the state‘s macro-control policies, the
market expectations and the market competition order, the
international trend of market prices, the situation of import
and export trade, prices will remain lower than the
international market price of the year。Along with the
movements in international and domestic market, prices
will fluctuate, but will not change too much. The annual
cost ratio profit margin, the tax payments, as well as
profits will maintain a good level.
North American market, compared with the European
market and the Asian market, have a major impact on
global price movements. China's domestic market price
trend can not dominate the international market price trend,
nor can it lead the international market prices.
Ⅲ Development trend and strategic
thinking on China’s Steel Import
and Export
The 2006 witnessed a historic change in
China's steel export ，concluded the
fact as a net importer of steel for 57
years and became a net steel exporter,
which aroused world wide attention. We
should make a comprehensive analysis
and accurate assessment on the
development of China's steel industry
and exports increase .
⑴ A historic change on the situation of
China's steel import and export
1 China has changed from a long-term net importer of
steel to a net exporter of steel
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For a long time, the steel production in China can not satisfy its own
demands of national economic development due to a backward steel
industry。During 1991-2005, China imported 328.89m tons of steel
and was the biggest steel importer in the world, but only exported
104.38m tons in the same period, less than 3.15 times of the former.
In 2006, a historic change occurred for situation of China's steel import
and export 。According to statistics, the annual steel imports were
18.51 million tons, accounting for 3.9% of total steel production; and
43.01 million tons of steel exports, accounting for 9% of the total
production of steel；net exports were 24.5 million tons, accounting for
5.2% of the total production, as well as a net exports 8.67 million tons
of billet. Converting all the steel and billet into crude steel, the exports
totaled 54.31m tones, accounting for 12.85% of total crude steel
production; and the imports totaled 34.46m tones, accounting for 8.2%
of total crude steel production.
2 The main reasons for the decreased imports and
increased exports and the impact on world economy
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Strong steel demand in the international market provide an
international market for China’s steel exports.
Steel price gap between domestic and international markets
continue to expand, while returns on the export of steel is higher
than the domestic market
The structure of export product improved, the slab and strip
products increased, and the international competitiveness groed.
China's steel export tax rebate rate reduction stimulated the
producer and export traders to focus on export.
In recent years, the global steel exports account for around 40%
of total production. China's exports have a reasonable level.
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China’s increased steel exports filled the gap between supply and
demand in the global steel market, and good for the global balance
between supply and demand and will ease inflationary pressures thus
extend the world economic development cycle .
In recent years, the world's major steel-producing countries have been
exported or imported in great quantities of steel, which reflectes the
characteristics of economic globalization.
China has ended the 57 year long-period of a net importer since 1949,
This is an important embodiment of economic globalization in the steel
industry, it is also an important symbol of the improvement of the
international competitiveness of China's iron and steel industry.
Large steel exports do not meet the steel industry policy orientation,
China will continue to control exports of steel, steel exports will return
to normal levels.
3 Prediction of the development trend of China's steel
export in 2007
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In 2007, due to the decrease of domestic steel production and the leg effect
of export tax rebate rate reduction, China’s adaptation of a series of
measures not to support the export of steel as well as the impact of steel
trade protectionism on the rise, China’s steel and billet exports will decline.
The annual net exports of steel and billet is expected to reduce about 10
million tons, more than 60% of the steel exports would be plate, pipe and
strip products, the long products exports proportion will also decline.
Steel imports will up to 17.5 million tons, maintain the basic level in 2006.
Main imports are cold-rolled sheet steel, galvanized plate, stainless steel,
electrical steel and other high value-added products. There are also a
medium grade products. Import through processing trade volume
maintained at around 50%.
Because of the prediction of steel export tax rebate rate is expected to
further lower lead to a growth in export activities, export steel exports
continued to grow in Jan and Fed of 2007 .The export growth will gradually
fall late .
⑵ Understanding of the situation of China's steel
imports and exports and strategic choice
1 From the trend of the rapid development of China's
iron and steel industry, a correct understanding of
China's steel imports and exports is necessary.
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The characteristics of this stage of our economic development,
provide a strong impetus for the development of the iron and
steel industry. China has proposed that in 2020 the grand
objective of building a well-off society, realizing industrialization,
increasing urbanization rate. upgrading of the consumption
structure, and comprehensively promoting the new rural
construction, which has opened up a broad market space for the
development of the iron and steel industry, and strong domestic
demand will become the dominant factor in the development of
iron and steel.
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Industries transferring worldwide has played a role booster for the
development of China's iron and steel industry. From the beginning of
the 20th century to the start of the 1980s, with the development of
new technology, the in-depth development of the Internet and
information technology, a large number of world traditional industries
has been transferred. Some developed countries focus on high
technology, the development of information technology, transferred the
high-energy-consuming industries and labor-intensive industries to
developing countries and emerging market countries.
China's steel industry has taken the transferred international steel
industry, by absorbing and introducing foreign second-hand equipment
and technology, as well as driven by strong demand in the domestic
market, realized a production expansion.
Foreign investment in China's iron and steel industry has played an
important role, Sino-foreign joint ventures and foreign-owned
enterprises take advantage of cheap labor produced products sold to
overseas market. Thus promoting the expansion of China's steel
production and export increase.
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The continued growth of the world economy and the expansion of
the international steel market provide a rare opportunity for the
increase in China’s steel exports. From the beginning of 2002, the
world economy has entered its rising cycle, demand for steel
products have been rapidly expanding . This need not only come
from developed countries, but also from developing and emerging
market countries. Chinese steel enterprises seized this period of
important strategic opportunities.
China's iron and steel enterprises to raise the level of equipment,
technology innovation and technical progress, to increase in the
variety and improve the quality will provide technical support for
China's imports reduction and exports expansion.
Moderate steel export is the inevitable choice for China's steel
industry to actively participate in international market competition;
is effective measures for structural adjustment, product quality and
grades improvement as well as the level of technology upgrade; is
the only way for China’s transformation from a large iron and steel
nation to a powerful iron and steel nation .
2 From the perspective of economic globalization, have a dialectical
understanding between the relationship of China's steel exports and the
global steel market supply and demand.
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Economic globalization is the basic feature of the current world economic
development. Neither developed nor developing countries is a closed market. With
the development of world trade, the free flow of goods, the market will achieve a
balance between supply and demand in.
In 2006, global crude steel production was 1.2395 billion tons of, 4.2266 million
tons of steel made in China, accounting for 34.1%. China's steel output has been
included in the global market balance between supply and demand. Global steel
export volume account for 40% of total production, and the export volume of China
account for 9% of total steel production, which have been included in the global
trade balance, achieved a basic balance between supply and demand in the global
market as a whole.
World trade coordination mechanism, highly developed information transmission
system further enhanced the market correlation in and abroad, and have a good
effect on achieving a balance between supply and demand in the global market.
Without China's increased steel exports, it is impossible to realize the global
balance of supply and demand. China's rolled steel exports to the moderate trend is
irreversible.
3 From the point view of value rule in market
economy, have a comprehensive look at the
difference in the level of imports and exports
of steel prices.
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According to Chinese customs statistics, in 2006 China imported
18.51 million tons of steel, the average CIF price was $ 1071.18
per ton CIF, 43.01 million tons of steel was exported, and the
average FOB price was $610.2 per ton, price difference was
$460.98 per ton. The difference is mainly due to the varieties of
steel structure of imports and exports as well as the differences
between import and export volume among similar products and
the share of the total.
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Products of different variety and quality have different price is a
normal phenomenon. In the import and export of steel (billet) of the
more than 300 varieties of different specifications, more than 70 varieties’
export prices higher than import prices. The export prices for alloy profiles
are $350.03 per ton higher than import prices. Galvanized sheet with a
higher of $ 75.97 per ton in export prices . stainless steel strip, 1.5-3.0
mm hot-rolled sheet, 1.0-3.0 mm hot-rolled stainless steel sheet, 1.0-3.0
mm cold rolled sheet and 0.5-1.0 mm cold-rolled stainless steel sheet with
a higher export price of $482.63, $92.67, $323.24, $107.69, and $705.33,
respectively.
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One important feature of the market economy is the pursuit of
profit maximization. The increase of sales profit rate is the pursuit
of long-term goals. No one will dump the high-value products with
a lower price.
Opposing trade protectionism, implementing fair market
competition will benefit the consumers from all countries;
Otherwise, it will damage the interests of consumers.
4 From changes in the macroeconomic environment and national
policy, correctly grasp the development trend of China's steel
export.
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Strict control over fixed assets investment, to prevent expansion of
steel production, which will slow down China's steel production growth
rate, to reduce steel resources exports from the source .
Reduce exports and expand imports is our foreign trade policy in 2007.
The main contradictions of China's current economic development are
the big trade surplus, large foreign exchange reserves, much RMB
appreciation pressure. This will become a major inhibition strength over
steel exports.
China will reduce the export tax rebate rate of steel products, increase
export tariffs and curb large volume exports of steel products, thereby
squeezing the profit margins of steel products exports.
The rise of international trade protectionism and trade frictions have
serious negative effects on fair competition of China's steel exports.
5 Positively deal with challenges, and promote the healthy
development of China's iron and steel export trade
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Implement the scientific concept of development, have a correct
understanding of the relationship between domestic and international
markets. adhere to the principle to meet the demand on the domestic
market. Along with the country's economic development and the
process of industrialization, there is a huge potential market for steel
products. To meet the demand on the domestic market is an important
indicator for measuring the healthy development of the iron and steel.
Iron and steel enterprises should combine business and state interests,
short-term and long-term interests, and put top priority to meet the
demand on the domestic market, contribute to the development of
healthy and good for our economy.
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Effectively change the mode of growth, from quantity-oriented to
quality-efficiency-oriented. To change the situation of high exports of
low value-added products and low exports of high value-added
products; and change the situation of more quantity but less profit.
Focus the export on lowering costs, improving quality and expanding
the variety of high-value-added products, and the ability to earn foreign
exchange through exports.
Implementing multi-level export products policy and geographical
diversification of export strategy. The uneven development of the
global economy leads to different levels of demand for export products,
namely demand for medium-to-poor quality products and high-end
products both exists. To improve research on export products
information. Export orientation of the regional strategic shift to
consolidate existing markets, and vigorously explore new markets. In
recent years, strong demand in developing countries and emerging
market countries arises. Change the export strategy from Europe and
the United States to developing and emerging market countries in due
time.
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Actively deal with trade frictions, safeguarding the
legitimate rights and interests of China's iron and
steel enterprises. Iron and steel enterprises should
strengthen self-discipline, and strictly abide by the
WTO rules and positively deal with trade disputes.
Give priority to talks and consultations on the trade
disputes, resort to legal means as a supplemental
alternative, and to solve them in accordance with the
principle of fair competition, sound reasons as well as
differential treatment, to promote the healthy
development of China's iron and steel export.