In Session Two of the SteelOrbis Fall '08 Conference & 59th IREPAS meeting, Jack Xu, Director of Coutinho & Ferrostaal's office in Shanghai, presented on an issue that plays an integral role in the global steel markets: the state of the Chinese steel industry.
Mr. Xu's presentation focused on what has been happening recently in China's long products market, and on what is to come.
Mr. Xu said that China's steel exports hit a record high in 2007. However, the imposition of export taxes on many steel products and the elimination of VAT for some products caused exports to drop sharply. Chinese steel prices rose to record high levels in 2008, but as a result of the pre-Olympic ramp-up in steel production, lack of steel demand worldwide, and export restrictions, China's steel market is now facing high inventories and overcapacity.
Chinese longs producers have cut production with the weakening wire rod and rebar prices and reduced export demand, but the price slide continues.
Going forward, Mr. Xu expects that the Chinese economy will see more growth, though only at conservative levels in the near term. More investment in capital projects is expected, which will create increased demand, while capacity will not increase, he said. He also expects the Chinese government to continue to control the steel industry expansion rate, which he says it has been doing since 2005, resulting in a considerable slowdown in the rate of expansion of China's steel industry. Environmental protection will also become a serious priority, he said.
Mr. Xu also answered some audience questions regarding Chinese steelmaking capacity, scrap consumption and export taxes. In response to a question on whether China's steelmakers will cut steelmaking capacity as other producers around the world are doing, Xu said that yes, some capacity will be cut. Xu also said that the lack of electricity in China will continue to affect its consumption of scrap, and that government-imposed EAF production restrictions will continue for this reason.
Perhaps the most interesting questions Mr. Xu answered were on export taxes. Audience members and Mr. Murat Eryilmaz, CEO of SteelOrbis, wondered if Xu thought the export taxes on steel would be eliminated. Xu said that even with the current market softness, he doesn't think that the export taxes for steel will be eliminated. The Chinese government continues to put more emphasis on flat and value-added products rather than on long products. However, he does not expect the government to raise these taxes either.