Sta­bi­liz­ing forces set to prop up the steel sec­tor

In­dus­try pres­sured by over­ca­pac­ity, en­vi­ron­men­tal is­sues, but com­pa­nies have op­por­tu­ni­ties, Du Juan re­ports

China Daily (Canada) - - BUSINESS -

China’s steel in­dus­try will face both chal­lenges and op­por­tu­ni­ties this year as most of the prov­inces have ad­justed their GDP growth tar­get to a lower level.

Af­ter the cen­tral govern­ment de­cided not to eval­u­ate lo­cal govern­ment’s per­for­mances based on GDP growth, about half of the prov­inces cut their 2014 GDP growth tar­get to lower than 10 per­cent for slower but rea­son­able eco­nomic de­vel­op­ment.

“As a con­se­quence of the lower GDP growth tar­gets, do­mes­tic steel con­sump­tion will be weak­ened this year. Mean­while, the com­pa­nies don’t have to keep pro­duc­tion up un­der pres­sure from lo­cal gov­ern­ments’ ad­min­is­tra­tive in­ter­ven­tion,” said Li Xinchuang, head of the China Met­al­lur­gi­cal In­dus­try Plan­ning and Re­search In­sti­tute.

He­bei, Jiangsu and Shan­dong prov­inces, all big steel pro­duc­ers, cut their 2014 GDP growth rate by 0.6 to 1 per­cent­age point, which will af­fect down­stream steel de­mand and up­stream pro­duc­tion, he said.

Na­tion­ally, the do­mes­tic de­mand for steel prod­ucts will grow slightly at 3.2 per­cent to 715 mil­lion met­ric tons this year, ac­cord­ing to es­ti­ma­tion of the in­sti­tute.

The World Steel As­so­ci­a­tion pre­dicted in Oc­to­ber that global steelde­mand­would­in­crease by 3.3 per­cent to 1.52 bil­lion tons in 2014. De­mand from emerg­ing economies was ex­pected togrow­even more, by 3.8 per­cent.

China was the only one that will see a drop in steel de­mand growth in 2014.

“In fact, it’s a good op­por­tu­nity for China’s steel com­pa­nies to ad­just their de­vel­op­ment mode and im­prove in­dus­trial struc­ture when the growth for steel de­mand is slow­ing down,” said Zhang Lin, a se­nior re­searcher at the Lange Steel In­for­ma­tion Re­search Cen­ter.

She said it was the tough­est year for China’s steel com­pa­nies since 2012, when they suf­fered from high raw ma­te­rial costs and fall­ing prices in the mar­ket.

The ma­jor steel com­pa­nies, ac­count­ing for 80 per­cent of the coun­try’s to­tal out­put, saw an over­all profit of 1.58 bil­lion yuan ($254 mil­lion) in 2012, a 98.22 per­cent drop from the pre­vi­ous year, ac­cord­ing to the China Iron and Steel As­so­ci­a­tion.

Zhang Changfu, sec­re­tary­gen­eral of the as­so­ci­a­tion, said it was “ex­tremely harsh” that such a huge in­dus­try had achieved such low prof­its.

But the in­dus­try started to warm up over the past year, achiev­ing a to­tal profit of 22.89 bil­lion yuan, said Li, of themet­al­lur­gi­cal in­sti­tute.

China im­ported 819.76 mil­lion tons of iron ore in the past year, a 10.3 per­cent in­crease com­pared with the pre­vi­ous year.

The aver­age iron ore im­port price re­mained flat, at about $128 a ton.

But Li said prices of im­ported iron ore were still than do­mes­tic ones.

“Un­der such cir­cum­stances, gi­ant iron ore pro­duc­ers have been swal­low­ing the steel com­pa­nies’ prof­its,” said Li.

He said China’s steel in­dus­try is bound to face mea­ger prof­its as it shifts to a slower, more sta­ble growth model.

“Chal­lenges are ahead,” Li said. “The se­vere over­ca­pac­ity prob­lem in the in­dus­try caused vi­cious com­pe­ti­tion. The cen­tral govern­ment has been tak­ing mea­sures to cut ca­pac­i­ties that can­not meet the en­vi­ron­ment stan­dards.”

Plus, he said, more rig­or­ous en­vi­ron­men­tal stan­dards for pro­duc­tion will bring higher costs di­rectly to com­pa­nies.

Ris­ing costs for steel mills also will come from on­go­ing pric­ing re­form of re­sources such as wa­ter, elec­tric­ity and nat­u­ral gas, Li said.

Li also said Chi­nese steel pro­duc­ers will face tougher trade pro­tec­tion­ism this year as many coun­tries want to pro­tect their own in­dus­tries, build em­ploy­ment and re­vi­tal­ize their economies.

In 2013, there were 17 cases of trad­ing in­ves­ti­ga­tion tar­get­ing Chi­nese steel com­pa­nies’ ex­ports.

In ad­di­tion, China used to ex­port steel prod­ucts to other de­vel­op­ing coun­tries, in­clud­ing In­dia, Viet­nam and In­done­sia, which now are work­ing on­build­ing theirown­steel pro­duc­tion projects.

That will af­fect China’s steel ex­ports to some ex­tent, said Li.

In 2013, China ex­ported 62.34 mil­lion tons of steel prod­ucts, up 11.9 per­cent yearonEx­port vol­ume to In­dia, Thai­land and South Korea all de­clined com­pared with the pre­vi­ous year, while ex­ports to coun­tries in­clud­ing Viet­nam, the Philip­pines and Malaysia in­creased, ac­cord­ing to the in­sti­tute.

In terms of the do­mes­tic mar­ket, there are some as­pects that will help slow the coun­try’s steel con­sump­tion.

Ac­cord­ing to the 12th FiveYear Plan (2011-15), China will build 36 mil­lion af­ford­able apart­ments, which trans­lates to 10 mil­lion af­ford­able apart­ments added an­nu­ally in the near term.

That con­struc­tion will in­crease do­mes­tic steel use.

The cen­tral govern­ment plans to in­vest no less than 1.4 tril­lion yuan in boost­ing rail­way in­fra­struc­ture over the next two years. The key area for this in­vest­ment will be the western re­gion, which will raise steel use in the area.

The na­tion’s ma­chin­ery in­dus­try is pre­dicted to achieve 12 per­cent growth in pro­duc­tion and sales this year, the Chi­naMachin­ery In­dus­try Fed­er­a­tion said.

Cai We­ici, vice-pres­i­dent of the fed­er­a­tion, es­ti­mated that, start­ing this year, the in­dus­try’s growth rate will sta­bi­lize.

Li pre­dicted that the sec­tor will con­sume about 140 mil­lion tons of steel prod­ucts, up 5.3 per­cent this year.

higher Con­tact the writer at dujuan@chi­nadaily.com.cn

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