Steel sector seeks sustained growth
(China Business Weekly)
Updated: 2004-03-02 17:31

China's demand for steel will remain strong this year and the industry's overall growth will remain healthy, despite irrational investment and expansion in some sectors, suggest top officials from the China Iron and Steel Association (CISA).

"China's steel supply will not exceed market demand this year because the country's strong economic growth continues to lead to a construction boom, and greater demand for steel," said Luo Bingsheng, CISA's executive vice-chairman.

"Moreover, the short supply in raw materials, such as iron ore and coke, will, to some extent, restrain the industry's output capacity."

Domestic prices of steel products will not drop significantly this year, but will fluctuate slightly, predicts Qi Xiangdong, CISA's vice-secretary-general and chairman of the Metallurgical Price Association of China.

CISA predicts China will produce 277 million tons of steel products this year, and that consumption will reach 280 million tons.

However, some Chinese media recently reported the nation's steel industry has been "overheated" and is facing a "hurricane" since Vice-Premier Zeng Peiyan on February 4 called for a correction in the excessive investments in the steel, aluminium and cement industries.

The National Development and Reform Commission (NDRC) last August warned China's then-added steel output capacity would be fully utilized within three years, and could make supplies exceed demand, especially if changes appear in the market and government policies, Economic Daily reported.

Steel: CISA calls for moderate regulations

"I don't agree with those who say 'China's steel industry is overheated,"' Luo said.

"Admittedly, there are blind investments and irrational expansions in some regions and some enterprises, but that doesn't mean the overall industry growth is unhealthy."

He declined to name either the regions or the enterprises.

Fixed-asset investment in China's steel industry last year reached 132.9 billion yuan (US$16 billion), up 87 per cent over 2002.

"But 90 per cent of the increased fixed-asset investment last year went to large-scale steel enterprises building modern production lines to produce technology-intensive and high-value-added steel products," Qi said.

"This is good, and necessary, for the industry's healthy growth. We should encourage such investments.

"Government regulations should be moderate, and should not 'cut it even at one stroke,' otherwise the industry will be severely damaged," Qi added.

NDRC officials have drafted policies to rectify irrational investments and unnecessary construction within the steel industry, and are awaiting State Council approval, industry sources said.

The policies are expected to tighten market access and focus on land and credit supply management, the sources said.

The China Banking Regulatory Commission announced on February 8 that it will investigate, beginning next month, loans to the steel industry, Beijing Morning Post recently reported.

Looking overseas

Exploring stable overseas sources of iron ore and coke should top the agenda for the steel industry, CISA officials said.

China has more than 40 billion tons of proven iron ore reserves.

However, the average grade of China's iron ore is 32.7 per cent, according to China's Steel Industry Yearbook, while that in Brazil, Australia and South Africa exceeds 55 per cent.

"Relying on both domestic and overseas mineral resources has been a basic strategy for China's steel industry," Luo said.

"Large imports of iron ore are inevitable, given China's rising steel supply."

China last year imported 148.12 million tons of iron ore, up 32.87 per cent year-on-year. That made China the world's largest iron ore importer.

Last year, China imported 58.12 million tons of iron ore from Australia, up 35.87 per cent year-on-year; 38.39 million tons from Brazil, up 28.98 per cent year-on-year; 32.27 million tons from India, up 43.26 per cent year-on-year; and 9.55 million tons from South Africa, down 7.18 per cent year-on-year.

"China's steel enterprises should unite when exploring and setting up iron ore or coke mines abroad," suggested Dong Zhihong, vice-director of CISA's market investigation and research department.

"Chinese steel enterprises are often trapped in inferior positions when negotiating individually with overseas iron ore and coke providers, because they are scattered and many are small producers."

Some Australian iron ore companies -- such as Hope Downs Management Services Pty Ltd -- have been negotiating with Chinese steel firms about potential co-operation, Dong told China Business Weekly.

Upgrading technology

"Upgrading product portfolios is still an arduous task for Chinese steel works," Luo said.

China, the world's largest steel maker, produced 241.19 million tons of steel products last year, up 24.3 per cent year-on-year, indicate CISA statistics.

China is the first country to produce more than 200 million tons of steel in one year.

Meanwhile, China imported 37.17 million tons of steel products, up 51.8 per cent, the most it has imported in a one-year period,CISA said.

The market share of domestic steel products decreased 2.2 percentage points, to 86.31 per cent, last year.

China still relies heavily on imports of technology-intensive steel products, especially those with high-added values.

To help Chinese steel enterprises upgrade their technologies, CISA is drafting a reference list of world-class technologies that are relatively efficient, energy saving and environmentally friendly in steel production.

The list will provide information about the suppliers of such technologies and examples of their applications, costs and investment results.

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