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Development Situation of China's Steel Industry and Strategic Thinking on Steel Import and Export in 2007

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Main imports are cold-rolled sheet steel, galvanized plate, stainless steel, ... export tax rebate rate is expected to further lower lead to a growth in export ... – PowerPoint PPT presentation

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Title: Development Situation of China's Steel Industry and Strategic Thinking on Steel Import and Export in 2007


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(No Transcript)
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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 Qi Xiangdong

April, 2007
3
Outlines
  • ? A good start for China's steel industry in
    2007
  • ? Analysis of supply and demand situation in
  • China's iron and steel industry in 2007
  • ? Development trend and strategic thinking on
  • Chinas Steel Import and Export

4
? A good start for China's steel industry in
2007

5
  • 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 macro-control 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

6
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.
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2 Market demand strong, imports and exports
have shown good momentum
  • 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.

8
3 Steel price return rationally, the smaller
market volatility
  • 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.

9
4 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

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5 Fixed assets investment increased slightly
Macro-control policy effected
  • 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 state-holding 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.

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? Analysis of supply and demand situation
in China's iron and steel industry in 2007
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  • 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.

13
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 macro-control factors, thus bring
forward the possible goals. (steel production
contains repeat materials )
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2 Forecast of apparent steel consumption in
domestic markets
year Total fixed asset investment (00 billion RMB) Total fixed asset investment (00 billion RMB) Crude steel apparent consumption (million tones) Crude steel apparent consumption (million tones) Crude steel apparent consumption (million tones) Growth in Crude steel consumption Growth in Crude steel consumption Crude steel consumption of FAI per 00 billion RMB
year Investment Growth Consum-ption Produ-tion Net imports Growth Growth Rate Crude steel consumption of FAI per 00 billion RMB
2001 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 Forecast 2 131844 20 45500 47500 -2000 5668 14.22 0.3451
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.
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3 International steel prices will remain high
The domestic market will be lower than the
international market price level
  • 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 worlds 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 states
    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.

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? Development trend and strategic thinking on
Chinas Steel Import and Export
18
  • 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 .

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? 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
  • 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 steelnet 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.

20
  • 2 The main reasons for the decreased imports and
    increased exports and the impact on world economy
  • Strong steel demand in the international market
    provide an international market for Chinas 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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  • Chinas 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.

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  • 3 Prediction of the development trend of China's
    steel export in 2007
  • In 2007, due to the decrease of domestic steel
    production and the leg effect of export tax
    rebate rate reduction, Chinas 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, Chinas 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 .

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? 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.
  • 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
    Chinas 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 Chinas transformation from a large iron and
    steel nation to a powerful iron and steel nation
    .

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  • 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.
  • 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.

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  • 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.
  • 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.
  • 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.

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  • 4 From changes in the macroeconomic environment
    and national policy, correctly grasp the
    development trend of China's steel export.
  • 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.

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  • 5 Positively deal with challenges, and promote
    the healthy development of China's iron and steel
    export trade
  • 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.

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