Review and outlook of Chinese steel industryMetallurgical Industry Planning and Research Institute. Steel export by month (10k t) There was a gradual slowdown in steel exports from

Review and outlook of Chinese steel industry

LI XINCHUANG

冶金工业规划研究院Metallurgical Industry Planning and Research Institute

2012年6月20日


Content outline

Main achievements of Chinese steel industry

Analysis of Chinese steel industry from Jan to May

Chinese steel industry development trend in 2012

Outlook for Chinese steel industry

Brief introduction to MPI

OUTLINE

1．Main achievements（1）In recent years, steel output has grown exponentially

1）The crude steel output has increased 4324 fold (1949-2011); the largest increases have occurred in the last 10 years.

2）China has been the world’s largest producer of crude steel every year since 1996.

3）Currently, China produces about 45% of the world’s steel, compared with less than 1% sixty years ago.


Since 1949, the industry has undergone a long-term process ofdevelopment, which can be divided into four stages. Stage 1: theperiod of initial start from 1949 to 1960. The crude steel output grewfrom 158 kt in 1949 to 18.66 mt in 1960. The average annual growthrate was 54.3% during this period, but the Chinese steel industry wasat this time still far behind those of developed countries.

1．Main achievements 冶金工业规划研究院Metallurgical Industry Planning and Research Institute

Stage 2: A period of slow and unstable development from 1960 to1978. The crude steel output grew from 18.66 Mt in 1960 to 31.78 Mtin 1978. The average annual growth rate was 3% during this stage;uneven development of the industry was a result of major politicalevents within China at this time.


Stage 3: A period of gradual and stable development from 1979 to 2000.The crude steel output grew from 34.48 Mt in 1979 to 128.5 Mt in 2000;the average annual growth rate was 6.6% during this stage. The industrydeveloped smoothly during Chinese reform and the open door policy,but still could not meet the local Chinese market demand.

1．Main achievement

World No1 since 1996


Stage 4: A period of fast development from 2001 to 2011. The crudesteel output grew from 151.6 Mt in 2001 to 683.3 Mt in 2011. The quickpace of development was mainly driven by the fast growing Chineseeconomy, as well as China’s entry into the WTO. The average annualgrowth rate was 16.25% during this stage, but has decreased slightly inthe last several years.


1．Main achievements（2）Steel product quality and grade improved


The fast development of China economy has pushed the steel industry to quickly develop, and we can now meet most of the local Chinese steel market demand. For example: Auto steel plate, pipe line steel, high grade silicon steel and power station steel are developed and produced on a large scale by our steel industry.

1．Main achievements（3）The technical level of steel making equipment greatly improved


At the end of 2011, China had more than 240 blast furnaces with volumes of above 1000 cubic meters, most of them were built in recent years.

About 52% of capacity of BOF come from the converters above 100 metric tons.

About 48% of capacity of the EAF comes from the EAF above 70 metric tons.

The technical level of roll mills of all kinds are far better than ten years ago.

1．Main achievements（4）Energy efficiency and environmental protection greatly improved


The energy consumption has dropped sharply from 2524 kgce/t in 1978 to 601.95 kgce/t in 2011. Even compared with 2005, the figure has dropped by 13.3%, which was a great achievement.

Water consumption has also dropped from 25.24 m3/t in 2000 to only 3.84 m3/t in 2011.

From 2000 to 2011, the emission of SO2 and dust per ton also decreased by 70.7% and 83.8%, respectively.

1．Main achievements5）The scale and competitiveness of Chinese steel enterprise has greatly increased


From 1993 to 2011, the number of Chinese steel enterprises on the global top 20 list increased from 3 to 10; of these, 4 are on the global top 5 list.

The average scale of the top 10 Chinese steel enterprises has grown from 6.79 Mt in 2001 to 35.74 Mt currently.

Shanghai Baosteel, WISCO, Angang Group and several other Chinese steel companies have grown to become world class steel enterprises.

1．Main achievements（6）The Steel industry layout is in the process of optimization


The ShouGang Caofeidian steel plant, the Anshan steel Bayuquan plant and the Baosteel Ningbo plant have been built near the coast, while some steel plants along the Yangze river are being expanded.

Plants at Zhanjiang and Fangchenggang have been recently approved by the NDRC, which will accelerate the process of layout optimization.

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2011.Jan Mar May July Sep Nov 2012.Jan Mar May

2.1 Crude steel outputThe growth rate of crude steel output had reduced in late 2011, but the daily output recovered quickly and reached an historical high in April this year. China produced 296.26 Mt of crude steel from Jan to May 2012, which is only 2.2% higher than the same period last year.

2．Analysis of Chinese steel industry from Jan to May 冶金工业规划研究院Metallurgical Industry Planning and Research Institute

daily output by month (10k t)

13.64%

7.84% 8.09% 6.55% 7.80%

-13.03%

2.93% 3.64% 2.61% 2.50%

-20.00%

0.00%

20.00%

Jan Feb Mar Apr May

growth rate of monthly crude steel output

2011

2012

523

0

100

200

300

400

500

600

2.2 Steel product exportChina exported 22.04 Mt steel products from Jan to May 2012, which is 10.1% higher than the same period last year (despite a small decrease in April compared with the same period last year). However, exports in May rose again to more than 5 Mt. Chinese steel products are more competitive these days.


Steel export by month (10k t)

There was a gradual slowdown in steel exports from March 2011 until Feb 2012. However, steel exports rebounded quickly to 5.03 Mt in March 2012, and soon climbed to another high in May.

2.3 Steel product importsChina imported 5.85 Mt of steel products from Jan to May, which was 14.4% less than the same period last year. It is very likely that the amount of imported steel will decline further this year.


Steel import by month (10k t)

In 2012, the amount of steel imported each month is relatively low; plate comprises nearly 85% of all imported steel products.

2.4 DemandThere is a strong relationship between steel product demand and investment in fixed assets. The level of Chinese investment in fixed assets decreased slightly in 2011. Furthermore, this decrease was greater in 2012; the demand for steel is expected to decrease as a result.


In China, almost 54% of steel products are used in the building sector. Investment in real estate is very important to the demand for steel products. Since the Chinese government implemented a strict policy regulating house prices, the rate of real estate investment dropped sharply from about 35% to 18.7%. Over the last 2 years, the manufacturing index (PMI) has decreased slightly.

2.5 Main raw materialChinese steel enterprises are troubled by the high price of imported iron ore in recent years. The average price of imported iron ore in 2011 was almost ten times that in 2001. From Jan to May this year, the average price of imported iron ore was about 138.4 USD/t, which is only slightly below the price in 2011.


On 1st Jun. 2012, the iron ore inventory in 30 main Chinese ports was about 95.71 Mt, which is still on a high level although is 5 Mt less than four months ago. For imported coking coal, average prices this year are about 11.9USD/t (or 8%) higher than 2011.

In Jan and Feb, the Chinese steel industry was in losses. March and April is in thin margin

The main large and medium size Chinese steel enterprises realised ameager profit from Jan to Apr, the total number is 1.148 billion which is only 3.36% of the profit for the same period last year.

33.75% of the main large and medium size Chinese steel enterprises sustained losses in the first four months of this year, with a total deficit of 10.44 billion.

2.6 Chinese steel industry is in thin margin or loss.


3.1 Crude steel output will still grow but at a low rate. We may still see a considerable net growth.

Main reasons are as follow

3．Chinese steel industry development trend in 2012

the demand growth rate slow down

great quantity of Chinese steel output

big new capacity

The reduction in GDP and fixed assets investment,and reduced activity in downstream sectors such as auto,machinery and real estate.

Crude steel production capacity under construction is about 55 Mt;Crude steel production capacity at the design stage is about 19 Mt.

Chinese crude steel output in 2011 was 683 Mt, possibly as high as700 Mt. In this situation,even low growth rate also means a considerable steel output


3.2 Steel price cannot currently increase greatly, but is more likely to remain at a relatively low level.

It is hard for demand to grow quickly largely

Competetion in domestic market is too fiercely

Main reasons are as follows

Competetion in domestic market is too fiercely

Market supply exceeds market demand

Raw material price is relatively low compared with last year

Competetion in domestic market is too fiercely Competition in domestic market is too fierce



3.3 Chinese steel industry will remain in a high cost low benefit situation

As mentioned before, iron ore price is still at an historically high level, although it is lower than last year.


Major cost reductions have been achieved by steel company, but it will be very difficult to realize further major decreases in costs.

▲

▲▲Costs of capital and labour are rising.▲The steel price is low and not likely to rise in the short term.▲

▲


It is possible that the price of power, transportation, natural gas and water will rise further.

（1）Several basic observations China is in an important period of strategic opportunity to develop

China is undergoing a fast process of industrialization and urbanization; steel is playing and will play a very important and indispensable role。 China is and will be the global center of steel supply and demand for a long time.

（2）There is still some space for growth in steel production to meet the local market demand, but adjustment of structures is the focus.

Urbanization is still at a low level(51%);imbalance among differentareas;imbalance between urban and rural zone;investment still plays an important role in promoting the economy.

China is determined to change the way it develops, and the steel industry will be affected accordingly.

During its fast development, the Chinese steel industry has accumulated many structural contradictions, so it has to adjust itself to realize sustainable development.

4. Outlook for the Chinese steel industry


4．Outlook for the Chinese steel industry冶金工业规划研究院Metallurgical Industry Planning and Research Institute

（3）Forcast of crude steel output

1866 1532 2522 3178

1012412850

15266

68327

5.2%

18.0%

44.7%44.4%

39.0%

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0

10000

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90000

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output of China's crude steel

percentage of China's crude steel in the world China has become the

world’s biggest crude steel producing

country since 1996

Unit:10kt

Forecast

steel product mix and quality

Steel industry supply chains

energy saving and pollution reduction

4

1

2

3

merger and cooperation

5 Layout of steel industry

冶金工业规划研究院规划百年基业研究万全之策

（4）several problems we need to solve

4．Outlook of Chinese steel industry

Five ideas

1．Focus on quality rather than quantity

4．Enhance the level of specialized production

2．Put emphasis on supply chains

3．Change the idea of service and operation


5．Speed up technique innovation to promote development

（5）ideas for future development

4．Outlook of Chinese steel industry


Some pictures of Chinese steel company


Some picture of Chinese steel company

Brief introduction to MPI

Metallurgical Industry Planning and Research Institute31冶金工业规划研究院

Policies research centerOverall planning center

Steel products market investigation centerRecycling economy research center

Energy saving and environment protection center Energy saving appraisal center

Mineral resource research centerCleaner production research center

Assets appraisal centerTechnology-economics research center

General layout and logistics research centerInformation research center

Approved by the state council（founded in 1972）

Affiliated with the state-owned assets supervision and administration commission

First class project consulting institute with top certification, registered by national development and reform commission.

Organization Chart

Think tank for both central government and local government

Guider of steel industry development

Consultant for all businesses connected to steel industry affairs.

MPI China steel report :Annually, Quarterly, different steel product market analysis,Iron ore, Manganese, Chrome ore, Coke market, Ferro market, Scrape market etc.

China Metallurgical Industry Planning & Research Institute(MPI)

EMAIL：[email protected]://www.steelplanning.cn

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Review and outlook of Chinese steel industryMetallurgical Industry Planning and Research Institute. Steel export by month (10k t) There was a gradual slowdown in steel exports from

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