SteelOrbis Shanghai
2006 has been an extraordinary year for all of
China's domestic steel producers. During the year, there was observed a succession of important events, each one occurring hot on the trail on the other. Of these, some were positive and benefited the steelmakers. Others, meanwhile, had the opposite effect, being a source of worry to the producers and even leading to them to loss. The year's events, which significantly affected the Chinese steel industry, may be conveniently examined under the headings of the international and the domestic scenes.
Regarding international events in 2006, perhaps the most noteworthy was the merger and acquisition (
M&A) trend among the world's big steelmakers. The unprecedented number of
M&A provided striking evidence that competition in the world market is undergoing a great transformation. The big steelmakers are expanding and are making no secret of their ambitions to conquer the whole, or at least a large part, of the world steel market. With the Mittal-Arcelor merger, the ongoing bids to takeover Corus and the close cooperation between Nippon Steel and POSCO, many of
China's steelmakers felt greater pressure urging them towards mergers. Some mills, it must be said, would welcome being merged as this would favor their interests. In any case, the
M&A trend is expected to continue in the near future, and such an expectation urges the local Chinese steelmakers, especially the big steel enterprises, to work out their future strategies and so be ready to meet the potential risks of
M&A.
In addition,
China's good steel export situation in 2006 benefited the local mills greatly, even though the number of antidumping measures increased in the destination countries. With the price gap between
China's domestic market and the world market expected to continue for a certain time into the future, the eagerness of local steelmakers to export more steel is not expected to be diminish, unless some unforeseen vital event occurs. Even so, to avoid potential steel export risks,
China's steelmakers and traders are tightening their ties with overseas buyers with a view to arranging primary steel processing in
China or in some other countries which have low cost levels. This will lead to a substantial change in exports of steel, with the emphasis being more on steel-based products rather than on steel itself.
Inside
China, both the effects of the state's efforts to control the surplus steel capacity and also to promote
M&A among local steelmakers are not obvious, although many measures have been taken. It is forecasted that more strict and effective policies with these above-mentioned goals are to be issued. At the current juncture, most of
China's steelmakers are longing for rapid development and expansion in order to be well-prepared for the fierce competition that lies ahead in the future.
Within the country also, the preference is for expansion through
investments in new workshops and productive lines at existing
manufacturing bases, rather than through
investments in completely new projects. After all, what the state is principally seeking to cut back on are new projects and on out-dated
production capacity. Thus, it is almost impossible for most steelmakers to obtain the state's approval for new projects such as
Baosteel's Zhanjiang project and Wuhan Steel's Fangcheng project.
In the overseas markets, the Chinese steelmakers are also hastening their activity. Although the major aims, whether regarding purchase or collaboration, so far still focus on raw material suppliers, foreign steelmakers may also be targeted if the prices or cooperative terms are found to be suitable. In order to raise enough capital for the achievement of their goals, more of
China's big steelmakers are planning to go public in the overseas capital markets.