At the end of January, the China Iron & Steel Association (CISA) issued its regular industry report in which it reviewed the performance of the Chinese steel industry in 2007.
The performance of China's steel industry in 2007 was characterized by the following features:
1.Robust market demand caused steel production to increase rapidly
In 2007, China's raw steel production registered a year on year increase of 66.2522 million mt or 15.66 percent to 489.2408 million mt, while growth declined by 2.67 percentage points. Meanwhile, pig iron production increased by 61.8922 million mt or 15.19 percent year on year to 469.4463 million mt, with a decline of 4.8 percentage points in growth rate compared to 2006.
Strong demand from both domestic and international markets pushed up steel production rapidly during the period in question.
Firstly, due to the strong demand in the domestic market, apparent consumption of crude steel (production + imports - exports) increased 11.87 percent or 46.10 million mt year on year to 434.36 million mt in 2007. During the second half of 2007, apparent steel consumption increased 14.11 percent year on year.
Secondly, as predicted by the International Iron and Steel Institute, global demand for steel in 2007 was robust with an increase of 6.8 percent to 1.1976 billion mt. In this context, China's net exports of crude steel reached 54.88 million mt, with an increase of 20.15 million mt or 58.02 percent year on year.
Taking imports and exports into consideration, in 2007 China's domestic steel market saw a generally balanced supply and demand situation; in addition, mills' steel inventories were at normal levels.
2. New progress in structural adjustment and optimization with regard to steel product varieties
In 2007, China's steel production reached 564.6081 million mt, up 104.4284 million mt or 22.69 percent compared with the previous year.
During the period in question, the production of high-tech and high value-added products moved up significantly. For example, in this period the production volume of cold rolled sheet coils was 17.4027 million mt, up 31.8 percent; that of cold rolled sheets was 15.6383 million mt, up 25.2 percent; galvanized sheet production reached 17.5458 million mt, up 37.9 percent; coated sheet reached 3.1721 million mt, with a rise of 36.1 percent; finally, the electrical sheet production volume totaled 4.1557 million mt, an increase of 23.5 percent. The output of the above five varieties registered a total of 57.9148 million mt, covering 10.26 percent of the total steel production volume in 2007 - up 0.67 percentage points over 2006.
During the whole of 2007, output of alloy steel reached 16.6077 million mt, with an increase of 2.9639 million mt or 21.72 percent; meanwhile, stainless crude steel output totaled 7.2 million mt, ranking number one in the world.
Looking at steel production and apparent consumption in term of product varieties in the domestic market, in 2007 China produced 196.8416 million mt of coils, accounting for 34.86 percent of the total national finished steel product volume, 2.97 percentage points higher than last year's level. On the other hand, apparent consumption came to 184.1581 million mt, covering 35.49 percent of the total amount, 2.7 percentage points higher than last year. In 2007, the proportions of coils output and consumption moved up, while demand was 0.63 percentage points greater than output.
By contrast, the shares of both longs production and consumption of the total finished product figures moved downwards. The output of long products totaled 266.1694 million mt, accounting for 47.39 percent of the total national finished product volume, 2.49 percentage points less than last year. In addition, demand was 0.25 percentage points higher than output.
In 2007, apparent steel consumption in the domestic market totaled 518.83 million mt with 501.96 million mt from domestically-produced steel supplies, covering 96.75 percent of the domestic market at one percentage point higher than last year.
3. Exports of steel products rise sharply in the first half of 2007 but drop back significantly in the second half
In 2007, China exported 62.6463 million mt of finished steel products, up 45.67 percent over last year; exports of semis totaled 6.4261 million mt, down 28.88 percent year on year. Meanwhile, imports of finished steel products amounted to 16.8706 million mt while semis imports reached 242,100 mt, with a decline of 8.86 percent and 34.64 percent year on year respectively.
During the first half of 2007, China's exports of finished steel products and semis came to 33.7905 million mt and 4.3699 million mt respectively, equivalent to exports of 40.3172 million mt of crude steel. Meanwhile, China imported 8.6931 million mt of finished steel products and 140,500 mt of semis, equivalent to 9.3885 million mt of crude steel. As a result, net exports of crude steel were 19.8671 million mt in the first half of 2007, with an impressive increase of 179.6 percent.
From April of 2007, the central government adopted a series of measures to restrict exports which, paradoxically, had an evident initial impact causing a rapid increase in steel product exports. In the second half of 2007, however, exports of finished steel products and semis were 28.8558 million mt and 2.0562 million mt respectively, equivalent to exports of 32.7539 million mt of crude steel. In this context, the net exports of crude steel were 23.9528 million mt, down 6.9759 million mt or 22.55 percent compared with the first half of the year. By comparison with 2006, the year on year increase in the first half of 2007 was 179.6 percent, while there was a drop of 1.22 percent in the second half. During the fourth quarter of 2007, net exports of crude steel declined by 3.3119 million mt or 24.46 percent year on year.
From the above, the year on year increase of 20.15 million mt in net exports of crude steel can be mainly attributed to the performance in the first half of the year. After the government adopted measures to restrict exports, exports in the second half began to remain stable while exports in the fourth quarter moved on a downward trend which is expected to continue in 2008.
4. Energy consumption per metric ton of steel declined, as did total pollution discharges
In 2007, the average energy consumption per metric ton of steel in China was 632.12 kg standard coal/mt - down 1.3 percent; meanwhile, fresh water consumption per metric ton of steel was 5.31 mt water/mt steel - down 17.42 percent.
With regard to pollution discharges, in 2007 total SO2 emissions discharged by China's large- and medium-sized steel producing enterprises dropped by 0.51 percent to 756,367.91 mt; total CO2 emissions discharged were 59,964.7 mt with a decline of 8.76 percent year on year; finally, total dust emissions decreased 2.79 percent to 382,274.92 mt.
Overall, China's large- and medium-sized steel producing enterprises made some progress in terms of energy saving and pollution reduction while some out-of-date medium- and small-sized steel mills still consumed considerable energy and discharged significant levels of pollution. The task of making more energy savings and further reducing emissions in the industry remains an arduous one.
5. New achievements in technical progress and new product development
In 2007, the Chinese steel industry registered new achievements in technology developments, such as in mining and dressing technology, iron and steel smelting, development of high-end products, technical integration of metallurgical equipment, energy & water savings and new technologies for the comprehensive utilization of waste. During the period in question, Baosteel succeeded in the trial production of X120 line pipe steel, realized chrome-free production of electro-galvanized units, and started up its smelting reduction equipment COREX3000 designed to produce 1.5 million mt of pig iron per year. Angang continued to improve process technology for continuous cold rolling, successfully developed core technologies of independent intellectual property which were applied in relevant enterprises; Wuhan Iron and Steel (Group) Corporation made progress in development and research of new generation grain-oriented silicon steel and high-efficiency dynamo steel, as well as in equipment technology integration; Taiyuan Iron and Steel Corp. made new technology breakthroughs in fields including world-class modernized stainless steel production.
In 2007, significant breakthroughs were made in China in developing and expanding certain products which are badly needed by the market, such as high strength ship plates, marine structure plates, plates for high quality automobiles and steel for auto parts, high strength heavy plates for engineering machinery and high buildings, X80 high grade high performance pipelines, 100-meter hot treated rails, 350 km/h high-speed rails for railways, steel for multiple-unit trains, high-end pressure vessel plate, high grade non-oriented silicon steel, new varieties of high grade stainless steel and high strength angle steel.
6. New Progress in mergers and collaboration between steel industry enterprises
In 2007, the following companies were involved in mergers and increased collaboration: Baosteel Group and Bayi Iron and Steel Works (they also made a joint investment with Handan Iron & Steel Group CO. for the development of Han Steel); Anben Iron & Steel Group and Lingyuan Iron & Steel Co.,Ltd.(they also cooperated in the Chaoyang project); Wuhan Iron and Steel Group and Kunming Iron & Steel Co.; Masteel Group and Hefei lron and Steel Group Co.; Valin Iron & Steel Group and Wuxi Steel Mill; Shagang Group Co., Ltd, Jiangsu Huaigang Group Co.,Ltd, Yonggang Group Co.,Ltd and Henan Yongxin Steel Mill; Jianlong Group and New Fushun Iron＆Steel Co. Ltd (they also reorganized Tonghua Iron & Steel Group Co. Ltd.); Minmetals Group and Yingkou Medium Plate Co.,Ltd; Sinosteel Corporation and Shigang; CITIC Pacific and Shigang Steel.
7. Rising production costs have pushed up steel prices
In 2007, iron ore imports totaled 383.0933 million mt, up 56.79 million mt or 17.4 percent. Iron ore prices reached a record high of above $190/mt CIF in December, while the average price was $125.28/mt CIF, up $56.38/mt or 81.83 percent year on year.
The price of imported iron ore rose dramatically, pushing the price of iron ore concentrate up correspondingly. In December, the price of iron ore concentrate in some areas rose to above RMB 1,500/mt, while the average procurement cost of large and medium-sized iron and steel enterprises reached RMB 1,179.25/mt, up RMB 571.87/mt or 94.15 percent.
As iron ore prices increased sharply, along with the influence of increases in coal, coke, electricity and freight prices, the production costs of basic pig iron for large and medium-sized iron and steel enterprises in December 2007 increased by 31.05 percent year on year. All enterprises came under great pressure from cost increases.
The comprehensive average price index of steel in the domestic market through the whole of 2007 was 113.49, up 8.57 points or 8.16 percent over 2006, with respective increases of 15.92 percent and 7.7 percent for long products and coils. The overall price levels in the steel market through 2007 were higher than in 2006.
At the end of 2007, the comprehensive price index of the domestic steel market had risen from 105.15 at the beginning of 2007 up to 125.12, representing an increase of 18.99 percent; of the products in question, long products and coils went up by 43.72 percent and 12.55 percent respectively.
During 2007, overall prices in the domestic steel market fluctuated at a high level, reaching their peak at the end of 2007. Meanwhile, the growth rate of long product prices was distinctly higher than that of flat products.
The comprehensive average price index of the international steel market in 2007 was 167.2, up 15.9 points or 10.5 percent over 2006; long products and flats rose by 24.7 percent and 3.7 percent respectively.
The comprehensive price index of the international steel market at the end of 2007 was 176.2, up 17.3 percent year on year; long products and flats increased by 35.1 percent and 8.3 percent respectively.
Generally, in 2007 similar trends were seen in the domestic and international markets regarding steel prices, with a smaller price difference observed compared with 2006.
8. Steel enterprise revenues rose greatly, while profit levels were on a downward trend
In 2007, large and medium-sized iron and steel enterprises achieved sale revenues of RMB 1,991.074 billion ($276.9 billion) - up 32.81 percent year on year, and posted profits of RMB 144.738 billion ($20.1 billion) - up 49.54 percent year on year, both hitting record highs, indicating some improvements in enterprises' production and operating efficiency.
Looking at the development trend in 2007, due to the continuous rise in the production cost of steel, enterprises achieved lower profits than before as their sales margins were on a downward trend. For example, the sales margins of large and medium-sized steel enterprises in 2007 were 7.27 percent, dropping to 5.63 percent in December.
China's steel industry has been experiencing certain problems in its development. The main problems are as follows: the capacity-expanding tendency of the whole industry remains unchanged; the investment growth rate of fixed assets is back on an upward trend; overall industry concentration remains at a low level - in 2007, the crude steel production of the top 10 steel producing enterprise groups totaled 179.9694 million mt, accounting for 36.79 percent of China's total production, 0.78 percentage points lower than in 2006; resources, energy and environment exerted a greater degree of restriction on the overall development of the industry; enterprises' innovative capacities still remain weak, and steel quality and varieties cannot meet all the market requirements.