Customers seeking to buy HR products from leading Chinese steelmaker Baosteel are meeting with certain difficulties at the current time. The main problem derives not from the rising steel prices, but rather from the reduced levels of HR products which the producer is making available for sale. Starting from March, customer demand for Baosteel's HR has not been fully satisfied.
The reason for this drop in Baosteel's supply of HR products is that the steelmaker's new No. 5 CR production line is due to be completed and put into operation within three to four months. This new CR line, which will have a yearly capacity of 1.91 million metric tons, constitutes Baosteel's biggest investment project for the 11th Five Year Plan period (2007-2012). To guarantee supplies of material for this CR line, Baosteel has opted to reduce its HR sales and store material instead. So far, according to reports, several tens of thousands of metric tons of HR products have already been warehoused by the producer for this purpose.
On Mar 24, 2008, as a crucial part of the preparations for the new No. 5 CR line, the new pickling unit passed hot trials two months ahead of schedule; all four coils produced and tested successfully passed qualification tests. As a key part of the CR line, the designed yearly processing capacity of the pickling unit is around 1.8 million tons. All products of Baosteel's No. 5 CR line will be aimed at the high-end market, and will include high accuracy thin CR sheet, HG sheet, high tension automobile sheet, oriented silicon steel and high grade non-oriented silicon steel.
The installation and operation of the No.5 CR line is an important strategical step towards Baosteel's plan of upgrading its product structure to the high-end market. Once the whole new CR line is completed and begins operations in the near future, Baosteel's HR product sales, especially of low-end HR products, will inevitably see further decline.
In addition, one of Baosteel's blast furnaces has been earmarked for an overhaul in late 2008. This will lead to a remarkable drop in Baosteel's output of crude steel. Consequently, the current situation of reduced HR supply from Baosteel will be exacerbated. This will provide further support for Baosteel's HR product prices, thereby influencing the local HR market in China.