On October 31st, the China Iron & Steel Association (CISA) issued its Fourth Industry Report of 2007 in which it reviewed the Chinese steel industry in the first three quarters of the year.
1. Steel production and exports rise strongly but at a slower pace
From January to September 2007, raw steel production registered a year on year increase of 17.61 percent to 362.732 million mt, while growth declined month by month. In January, the growth rate was 26.08 percent, while by September it had declined 8.61 percentage points to 17.41 percent.
During the same period, pig iron production rose 15.68 percent to 346.382 million mt, though also characterized by a gradual decline in growth. In January, the growth rate was 23.27 percent, while by September it had fallen to 12.71 percent, down 10.56 percentage points.
Expanding domestic demand together with the climbing trend in steel exports pushed up steel production dramatically during the period in question.
Firstly, due to the strong demand from January to September in the domestic market, apparent steel consumption (production + imports - exports) increased 10.73 percent year on year or 30.83 million mt to 318.08 million mt.
Secondly, as expected by the International Iron and Steel Association, this year's global demand for steel production will be robust with a predicted increase of 6.8 percent. In this context, in January-September 2007 China's steel exports reached 49.5221 million mt, up 73.2 percent; meanwhile, semis exports were down 2.64 percent to 5.9665 million mt. On the other hand, steel imports during this period reached 12.9784 million mt, down 8.23 percent; with imports of semis at 189,600 mt, down 39.85 percent. It is clear from these figures that steel exports have been growing rapidly while imports have declined.
From January to September, net exports of crude steel increased by 23.47 year on year.
This year, due to the very rapid increase in steel exports, the government adopted a series of measures to restrict exports. The impact of these official measures has already become evident. In April, the year on year growth of steel exports stood at 146.48 percent, while in August and September the figure was down to 39.52 percent and 9.14 percent respectively. In terms of crude steel, exports in September amounted to 5.0784 million mt, down 318,100 mt or 5.9 percent year on year. Meanwhile, crude steel exports for January-September came to 58.08 million mt.
Based on the current trend, it is expected that the export volumes of finished steel products and semis in the fourth quarter of this year will be lower than those of last year's fourth quarter due to the effect of the official macro control measures.
The decline in export volumes will help to limit the high growth of steel production. Meanwhile, all domestically-produced steel products will be supplied to the domestic market.
In consequence, it may be expected that the production volume of crude steel for the whole of 2007 will be around 480 million mt, up 14 percent over last year; meanwhile, the production of blast-furnace pig iron in 2007 will be around 465 million mt, with a rise of 12.4 percent year on year.
2. Continued structural optimization with regard to steel product varieties
From January to September, the production of high-tech and high value-added products move on an upward trend. For example, in this period the production volume of cold rolled sheet coils was 24.5451 million mt, up 32.76 percent; that of galvanized plates was 15.0804 million mt, up 51.9 percent; coated plates reached 2.3727 million mt, with a rise of 39.5 percent; finally, the electrical plate production volume totaled 3.0458 million mt, an increase of 22 percent.
At present, the general target for structural adjustment in the overall steel industry is to improve the ratio of high-tech and high value-added products to the total steel output. From January to September 2007, the total production volume of finished steel products came to 417.5383 million mt, up 24 percent year on year.
During the period in question, China produced 146.9882 million mt of coils, up 38.23 percent year on year, accounting for 35.2 percent of the total finished steel product volume, 3.63 percentage points higher than last year's level.
The production volume of long products totaled 195.9511 million mt, up 17.65 percent, accounting for 46.93 percent of the total finished product volume, 2.52 percentage points less than last year.
The narrow strip production volume reached 34.3872 million mt, up 12.35 percent, accounting for 8.24 percent of the total finished product volume, 0.85 percent less than last year.
The production volume of tubes and pipes totaled 30.9058 million mt, up 17.3 percent, accounting for 7.4 percent of the total finished product volume, 0.42 percentage points less than last year.
3. New progress achieved in energy efficiency and pollution reduction
Looking at China's 77 large- and medium-sized steel producing enterprises, their total energy consumption from January to September 2007 was 160.7093 million mt of standard coal, up 11.2 percent year on year. Due to the decline in energy consumption per metric ton of steel, the growth of total energy consumption was 6.41 percentage points lower than the increase in crude steel production. However, overall energy consumption still remained on its strong upward trend.
The average energy consumption per metric ton of steel was 624.9 kg standard coal/mt - down 2.4 percent. The fresh water consumption per metric ton of steel was 5.46 mt water/mt steel - down 18.7 percent; The water recycling rate was 95.95 percent - 0.83 percentage points higher than last year.
With regard to pollutant discharges, from January to September 2007, total SO2 emissions discharged by China's large- and medium-sized steel producing enterprises dropped by 0.59 percent, their total smoke dust emissions decreased 2.78 percent, total dust emissions decreased 3.06 percent, and oxygen consumption by chemicals in discharged wastewater dropped by 9.23 percent.
During the period in question, the enterprises concerned achieved some progress in waste recycling. For example, the rate of blast furnace slag reuse was 90.89 percent, the recycling rate of steel slag was 88.29 percent, while the residue recycling rate was 98.65 percent.
Overall, the total steel sector energy consumption accounted for 14.71 percent of total national energy consumption in the period in question. Meanwhile, steel sector waste water discharges constituted 8.53 percent of the national figure, while the sector's dust emissions accounted for 15.18 percent of emissions in China. In the fourth quarter and in the near future, the task of making more energy savings and further reducing emissions in the industry remains an arduous one.
4. Domestic ore output and ore imports increase; prices remain at high levels
In the first three quarters of 2007, large- and medium-sized iron ore mines registered a total production of 505.4655 million mt (low-grade, the same below) with an increase of 22.9 percent. The iron ore production of small- and medium-sized mines in China is expected to reach 100 million mt for the whole of 2007, while large- and medium-sized iron ore mines are expected to produce 705 million mt, thus giving a total output for 2007 of 805 million mt, which would be up 15.5 percent compared to 2006.
Total iron ore imports in January-September reached 284.0343 million mt with a year on year rise of 14.94 percent. The total import volume of iron ores in 2007 is expected to be 370 million mt, indicating an increase of 44 million mt or 14.2 percent over last year.
A strong growth trend has been seen in both domestic ore output and in ore imports. During the period from January to September, the average price for imported iron ore was at $79.72/mt (CIF), up 27.06 percent year on year. The price has been rising month by month, with the price level in September at $91.11/mt - an increase of 31.95 percent compared with January.
Driven by the price of iron ore in the international markets, the domestic price in China has also been rising gradually. At the end of September, the large- and medium-sized iron and steel enterprises purchased domestic ore at an average procurement cost of RMB 906.16/mt ($121.47/mt), up 63.58 percent over the same month last year and 49.04 percent over January.
The international ore price (CIF) has also risen due to the increase of freight rates for prompt deliveries. The CIF prices for contracts for prompt delivery on October 16th were $88.292/mt and $38.114/mt for routes respectively from Brazil to Chinese ports and from Western Australia to China.
The CISA has conducted research with the country's steel enterprises and decided on following measures:
1. To divide China into five regions for coordination between steel enterprises which import iron ore. The enterprises which have relatively big imports will also function as a shipping agency for smaller neighbouring enterprises, thus presenting a stronger and more centralized position for freight rate bargaining;
2. To improve the ratio of long-term sea transportation contracts and cut down the quantity of prompt-delivery sea transportation contracts. In this way, freight rates will be stabilized and reduced.
3. To promote long-term partnerships between steel enterprises and shipping companies. Meanwhile, both steelmakers and shipping companies are encouraged to cooperate in building iron ore transport ships so as to greatly improve the transport capacity for dry bulk cargo.
5. Steel prices in the domestic steel market remain steady; cost pressure increases
At the end of September 2007, the comprehensive steel price index in the domestic market was 115.14, up 9.5 percent compared with the beginning of the year. In the same period long product prices increased by 23.23 percent while flats prices rose by 5.87 percent. The steel prices have seen a steady development trend with relatively large fluctuations in August and September. The comprehensive steel price index at the beginning of this year was 105.15, rising month by month since February and reaching 113.34 at the end of May. The index subsequently experienced monthly fluctuations, before bouncing back to 115.14 at the end of September.
At the end of the third quarter this year, the comprehensive steel price index in the international markets was 170.4, up 13.45 percent compared with the start of the year, with long products and flats registering respective increases of 29.84 percent and 5.27 percent. The comprehensive steel price index was 150.2 at the start of the year;it rose month by month and had reached as high as 172.8 by the end of June. It then saw a certain decline before bouncing back to 170.4 by the end of September.
On the whole, steel price changes in the international and the domestic markets have been closely linked. And this tendency is also likely to continue in the fourth quarter of this year, with steel prices expected to remain stable with small fluctuations.
In January to September this year, due to the overall increases in steel prices in the domestic and international markets, the sales turnovers and profits achieved by large and medium-sized steel producers have trended upward.
It should be pointed out that, due to the rising raw material prices and freight rate charges, the production cost of steelmaking pig iron from January to September this year has increased by 11.33 percent year on year. Meanwhile, management fees have increased by 30.93 percent, in addition to respective increases of 42.05 percent and 33.37 percent in financial expenses and sales expenses. Currently, most steel producers are under great pressure from increasing costs.
While steel production costs are continuously increasing, the profit levels of large and medium-sized steel companies have been showing decreasing tendencies month by month. The average sales profit margin in March this year was 9.65 percent, while the figure dropped to 6.28 percent in August and stood at 6.79 percent in September. Such a decrease tendency will merit considerable attention in the coming period.