The latest indications from Baosteel are that the company has decided to implement its new plan for the reduction of its output of low-end steel products and to increase its output of high value-added products. This plan was conceived in 2007 and movement towards its implementation has been accelerated by the recent international iron ore price hike.
Similar indications have also been heard at recent meetings attended by top leaders of the big Chinese domestic steelmakers. The widespread and steady increases in material costs have caused these big Chinese steel producers to shift their focus from low value-added steel products and to transfer more resources to the production of high-end steel.
Besides the cost factor, the over-heated competition in the sphere of low-end steel products is another key factor for the big steelmakers.
In 2007, China's booming domestic steel market brought big profits to local steelmakers and traders. Due to the year-long increases in local market prices, anyone who had steel in hand could easily make money. This perfect market situation stimulated many steelmakers to produce steel without halt and, in consequence, outputs certainly saw remarkable increases. Among the steel products in question, many were medium and low-end products, including rebar, HR and CR, and other staple goods.
Currently, China's advantage as regards steel prices is vanishing in the world's market. Increasing material and shipping costs as well as domestic environmental costs are offsetting the previous superiority China possessed in terms of cheap labor and natural resources. Meanwhile, as newcomers to the steel industry, Vietnam, India and Brazil are attracting more and more investment and the number of their steel mills is increasing at an outstanding pace. The prospective competition from such countries and the big steel capacities which they have under construction pose serious a threat to China's position in the world market, especially in the field of low-end steel products. These products will provide the major focal point for the development of the steel industries in these countries for as long a period as was the case in relation to China.
According to the indications from Baosteel's top sales personnel, it will be harder than ever to purchase some steel grades like SPHC and Q235 from Baosteel in the near future. The company's output of such steel will be reduced gradually, with sales cuts to commence with orders from ordinary traders. Baosteel is encouraging its customers to update the steel grades used in downstream production. Orders from end-user customers will be gradually cut, whereas output of high-end steel products such as auto sheets, galvanized sheets, stainless, and high grade silicon steel is projected to grow rapidly.