As a special steel product containing 0.8-4.8 percent silicon, oriented electrical steel is widely used in the production of various electrical transformers. Due to the complex technology and skills required for the manufacturing process, for the moment just slightly more than 10 of steelmakers worldwide are able to produce this steel.
Since 2004, due to the huge domestic demand coming from the construction of electricity supply projects, the output of transformers in China has increased sharply. The strong market demand has continuously pushed up the market prices of oriented electrical steel.
In China, Wuhan Steel can be regarded as the only steelmaker capable of massive production of oriented electrical steel. The market price of Wuhan Steel's 30Q130 grade material was at RMB 15,000/mt ($2,008/mt) in mid-2004, going on to peak at RMB 40,000/mt ($5,355/mt) in 2005. The current price is still high, at around RMB 35,500/mt ($4,752/mt).
Wuhan Steel is planning to sharply increase its oriented silicon steel production from 200,000 mt in 2006 to 270,000 mt in 2007, further increasing to 300,000 mt in 2008 and to 400,000 mt in 2009. In 2007, Wuhan Steel's second oriented electrical steel production line is expected to produce more than the designed 160,000 mt output. The producer's third production line, which is currently under construction, is planned to be put into operation in late 2008 with a targeted capacity of 100,000 mt for 2009.
Apart from upping output quantity, the mill is also investing in increasing its share of the high-end oriented electrical steel product HiB in its total production. It is estimated that Wuhan Steel's output of HiB will be 20,000 mt in 2007, 50,000 mt in 2008 and 150,000 mt in 2009, accounting for 40 percent of the company's total oriented silicon steel output.
Furthermore, Baosteel, Angang and Taigang are also interested in this steel and have taken practical steps towards capacity expansion. Of these producers, Baosteel is undoubtedly the most powerful. Its capacity of oriented electrical steel is expected to reach 100,000 mt in 2009.
China's demand does not only stimulate domestic production, but also imports of oriented electrical steel. Most of the imported products are supplied by Japan-based Nippon Steel and JFE, Russia-based Novolipetsk and South Korean producer POSCO. Imports from the above four steelmakers account for around 70-80 percent of China's total oriented electrical steel imports. In 2006, China's total imports of oriented electrical steel came to around 255,000 mt. This figure is expected to reach 270,000 mt in 2007, 290,000 mt in 2008 and 300,000 mt in 2009. Due to the capacity expansions and strong exports of Novolipetsk and POSCO, these two steelmakers will probably account for 50 percent of China's imports in 2007.
Another noteworthy point, the nature of local demand for oriented electrical steel is changing. Big transformers are becoming more popular in China, as opposed to the small- and middle- sized varieties. The big transformers need higher grade oriented electrical steel and less quantity. This trend provides an indication that the low-end products will be swept out of the market. Future competition will inevitably focus on the high-end market. With the sharp increase in supplies, a surplus situation as regards oriented electrical steel will perhaps occur after two to three years, namely in 2009-2010. Wuhan Steel's current gross profit rate for oriented electrical steel is very high - about 70 percent. This situation is expected to change gradually in line with the increase in supply.