China's stainless steel capacity increase may slowdown

Thursday, 13 September 2007 11:42:09 (GMT+3)   |  
       

China's major stainless steelmakers, namely Baosteel, Taiyuan Steel and Posco China, had previously disclosed that they would reduce their production by 20 percent from the 1st of July 2007. Although such a decrease in production seems unlikely, investments in China's stainless steel industry may indeed see a slowdown in the future.

The above-mentioned three stainless giants had also planned to reduce their production of stainless products last year, but in the end these plans were not carried out. Reports stating that these steelmakers have already begun to limit their production have started to spread in the market, although the mills have declined to issue official confirmation. In the stainless steel market, these rumors are welcomed as support for the current weak market situation.

So far, the only confirmed imminent production cut is Baosteel's indication that it will reduce its monthly output of HR stainless steel to 70,000 metric tons in December due to repair works. Production of CR stainless steel will not be affected.

Baosteel, being the second largest stainless steelmaker in the country, has a stainless steel production capacity of two million metric tons. In 2006, Baosteel sold 619,000 metric tons of HR stainless steel. Of this, the quantities for industrial use and for manufacturing stainless steel-based products were 245,000 metric tons and 252,000 metric tons respectively, taking up 40.9 and 50 percent of total consumption in China. Meanwhile, Baosteel sold 420,000 metric tons of CR stainless steel. Of this figure, the 304 series accounts for the highest share with a sales volume of 320,000 metric tons, possessing 13.4 percent of the domestic market. The same figures for the 430 series were 65,000 metric tons and 10.7 percent. Baosteel's production strictly depends on orders received. Therefore, the total output is very close to the sales volume. The producer's average monthly output of HR and CR stainless steel is 52,580 and 35,000 metric tons respectively.

In 2007, Baosteel invested more to enhance R&D and expand its HR stainless steel capacity. Baosteel's monthly output of HR stainless steel is about to exceed 90,000 metric tons soon. As to CR stainless steel, the current average monthly output is around 30,000 metric tons. Furthermore, Baosteel is constructing another production line for CR stainless steel strip. When the first construction phase is over at the end of 2007, 700,000 metric tons capacity of pickled HR stainless steel will be released.

Meanwhile, China's largest stainless steelmaker, Taiyuan Iron and Steel Company (TISCO) has an annual stainless steel production capacity of three million metric tons. In June, the company opened its largest CR stainless steel annealing and pickling line, which has a 700,000 metric ton production capacity. The company is also planning to increase its stainless steel production capacity at the Taiyuan ecological stainless steel industrial park to 500,000 mt before 2008.

China's third largest steelmaker Lianzhong Stainless Steel Corporation (LISCO) has 800,000 mt and third largest steelmaker POSCO China has 600,000 metric tons of annual capacity. These mills only produce stainless steel. Overall, the total stainless steel production capacity of China is nearing 10 million mt.

China's stainless steel market has spent most of 2007 in a downturn. Especially in summer, the international nickel price decline combined with the off-season were among the main reasons for this downward trend. Nickel prices on the LME stock exchange decreased from $51,000/mt in early May to $28,000/mt at the end of August.

As a consequence, Chinese manufacturers adjusted their ex-factory prices downward at certain times in order to stabilize the market. However, the mills have not actually taken any measures to limit their production by 20 percent. On the contrary, their main aim is to expand the market share as the market moves down. Besides, most production is arranged according to orders, and so an extensive reduction of production in the market in order to push prices up seems unlikely at any time. However, as also recently indicated by China Iron and Steel Association (CISA) deputy chairman Wu Jianchang, investments in the stainless steel industry may see a slowdown.

In order to avoid the influence of fluctuations in nickel prices, Chinese stainless steel producers have started to focus on ferritic stainless steel production with less nickel, as opposed to austenitic steels. In particular, 400 series products are of interest to all Chinese stainless steel producers. Currently, austenitic stainless steel accounts for nearly 90 percent of consumption in the domestic market, while the remainder is made up by ferritic stainless steel. However, this situation may change greatly in the future. For example, in the last two months, over 50 percent of Baosteel's HR stainless steel production consisted of ferritic stainless steel. This trend is also spreading in CR stainless steel production.   


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