Chinese Iron and Steel Industry: Large-Scale Mergers to Ease Overcapacity

Chinese Iron and Steel Industry: Large-Scale Mergers to Ease Overcapacity

01

Chinese Iron and Steel Industry:

Large-Scale Mergers to Ease

Overcapacity

Written by Yichen Mao [email protected] 2016/3/23

Industry Highlights

Industry Suffering from Overcapacity, Push to Strengthen Exports

China’s iron and steel industry is facing a harsh winter due to overcapacity and

falling product prices, with experts calling for a boost in mergers and export

activity in order to resolve these issues. However, the progress of mergers and

reorganisation has essentially been precluded by local governments that are

burdened with massive debts, and the export trade— although well-supported by

government policy— has encountered backlashes against anti-dumping from

overseas markets.

Companies Move toward Consolidation and Mergers

Despite the corruption in local government, it is anticipated that, in tandem with

global trends, a number of large-scale mergers and acquisitions among Chinese

iron and steel manufacturers will take place over the period of 2015–2020. As the

market becomes consolidated, it is likely that production will be concentrated

towards the coastal region, with the emergence of two to three conglomerates in

Northern and Eastern China.

Aiming for Domestic Supply of High-End Products

The automobile and energy resource industries will gradually replace the

construction industry— which currently holds a roughly 60% market share— to

become the largest sources of demand for steel materials. At present, high-end

industries are dependent upon imports of special alloys of the kind that are often

used in facilities such as nuclear power generators. The establishment of a

stronger system for technological research, development, and management

should enable the supply of such materials in future.

Chinese Iron and Steel Industry: Large-Scale Mergers to Ease Overcapacity

02

Catalogue

Background p.3

Macroeconomics of China p.4

Basic Policies and Principles of the Xi Government p.5

Beijing’s Two Biggest Concerns p.6

Analysis – Chinese Iron and Steel Industry p.7

Classification and Value Chain p.8

Policy Trends p.9

Major Tasks and Issues p.10

Production Areas: Characteristics and Trends (Map Attached) p.12

Finding the Way Out: Exports and Minor Boost of Domestic Demand p.17

Elimination of Overcapacity by 2020 p.20

Involvement in Global Merger Trends p.22

Speculation of Local Governments and Enterprises p.23

Industry Players (Attachment) p.24

Companies Accelerating Entry into Overseas Markets Despite Anti-dumping Measures p.26

Steel Material Prices Dropping, Likely to Plunge Even Faster p.34

A Harsh Winter for the Industry: From the Perspective of Revenue Model p.38

Eastern China: Product Unit Price Relatively High, Expected to Recover Soon p.40

Steel Material Exports Increasing, While Imports are Sluggish p.41

Looking Ahead: Future Trends p.42


Large-Scale Mergers to Ease Overcapacity

03

Background

○ Macroeconomics of China

○ Basic Policies and Principles of the Xi Government

○ Two Major Current Issues: Overcapacity in Major Industries and Swelling Debts Held by Local Governments



04

Macroeconomics of China

In 2010, China was ranked second in the world in terms of GDP. However, its

GDP per capita remained low at USD 7,750 (as of 2014) and is equivalent to that

of mid- to low-income countries, exhibiting the gap with OECD countries.

There is a significant gap in economic development between coastal regions

(including special economic zones) and inland regions, with China’s top 30 cities

by GDP accounting for almost 50% of the country’s total GDP. Evening out these

regional differences is one of the major tasks for the Chinese government.

The figures of each key index disclosed by the Chinese Academy of Social

Science are either falling year-on-year or growing by a very small amount.

Although these figures are said to be “adjusted” to fit government targets, they

nonetheless demonstrate an economic slowdown in the market.

The reorganisation of China’s iron and steel industry has been drawing

worldwide attention because it is related to a multitude of industries including

infrastructure construction, machinery and equipment, shipbuilding,

automobiles, and household appliances.

Finally, it is important for industry observers to pay close attention to the Xi

government’s upcoming 13th Five-Year Plan (2016–2020). Such policies have a

substantial influence on industry development in China.



05

Basic Policies and Principles of the Xi Government

Doubling Both GDP and Income per Capita in Rural and Urban Regions by 2020 from 2010

The Chinese government under the previous Hu-Wen Administration (2003–

2012) revised its economic development framework from “a stabilised and

relatively rapid growth” to “a sustainable steady growth”, and reduced its target

average annual GDP growth rate from 10% to 7%, pulling itself out of its

number-obsessive focus on double-digit growth.

*The Chinese government has been extraordinarily resolute in its commitment to show 7% GDP growth, using obscure calculation methods to do so. Therefore, there are some economists who claim that China’s 7% GDP growth is essentially 0% in OECD countries, and anything below 7% indicates a negative growth.

The Chinese government has also attempted to shift its economic development

focus from export and investment to domestic demand, under which

investment, consumption, and exports play equal roles.

Improving Livelihood Stability and Promoting Urbanisation in the Mid- to Long-Term (By 2020)

The Chinese government aims to improve livelihood stability and achieve

economic recovery through boosting construction of indemnificatory housing

for low- to mid-income households and exploring further development of its

urbanisation projects, under which six new districts (to be directly administered

by the central government) will be established.

China’s market mechanisms will undergo structural reform, wherein large-scale

government expenditure will be curbed to restrain the country’s swelling debts

and industrial sectors such as railway investment will make efforts to lure more

private capital.

The Belt and Road Strategy, together with the establishment of the Asian

Infrastructure Investment Bank (AIIB), will be conducive to enhancing China’s

influence within Asia and prevent the country from becoming isolated. It will

also help to export China’s excess production capacity.



06

Beijing’s Two Biggest Concerns

Overcapacity in Major Industries

It is believed that China’s current overcapacity crisis can be attributed to the

CNY 4 trillion economic stimulation package that was launched in 2009.

In addition to the iron and steel industry, other industries such as cement,

shipbuilding, and solar power panel manufacturing are also facing similar

overcapacity issues.

The government has taken initiatives to combat this by discarding ageing and

outdated facilities, prohibiting manufacturers from blind expansion of their

production scales, and attempting to streamline the industry through

consolidation.

However, the issue of overcapacity remains unresolved, with a large number of

companies in the iron and steel industry showing blatant disregard for the

central government’s orders and continuing to increase their output capacity.

Regional Issues

On a regional level, there are issues such as the accumulation of debt by local

governments, environmental pollution (air, soil, and water) due to the

abovementioned blind expansion in the industry, and regional unbalances in

economic development.

In addition, trends such as a decreasing population and unfavourable sales of

real estate have become increasingly significant in Tier 2 and 3 cities as youths

are leaving their hometowns.



07

Analysis – On China’s Iron and Steel Industry

○ Industry Overview: Classification and Value Chain

○ Industry Overview: Policy Shift

○ Industry Overview: Major Tasks and Issues

○ Production Region Characteristics: Concentration in Northern and Eastern China

○ Production Region Characteristics: Shift Towards Riverside and Coastal Regions

○ Market Trends: Finding the Way Out: Minor Boost of Domestic Demand and Exports

○ Market Trends: Elimination of Overcapacity by 2020

○ Potential of Merger: Global Merger Trends

○ Potential of Merger: Speculation of Local Governments and Enterprises

○ Potential of Merger: Industry Players (Attachment)

○ Market Trends: Companies Accelerating Entry into Overseas Markets Despite Anti-dumping Measures (Attachment)

○ Market Trends: Steel Material Prices Dropping, Likely to Plunge Even Faster

○ Market Trends: Industry Facing Harsh Winter from the Perspective of Revenue Model

○ Market Trends: Eastern China Expected to Recover Sooner than Northern China

○ Market Trends: Steel Material Exports Increasing, While Imports are Sluggish



08

China’s Iron and Steel Industry – Industry Overview

Classification and Value Chain

Crude Steel Classification

Based on ISO4948/1 and ISO4948/2, the former National Technology Inspection

Bureau (currently AQSIQ) stipulated and implemented GB/T13304-91 pertaining

to steel classification in 1991. Depending on steel composition, crude steel is

classified into four categories—non-alloy steel, low-alloy steel, alloy steel, and

stainless steel. Note that the General Administration of Customs of the People’s

Republic of China (the Customs) collects data for stainless steel separately due

to its importance.

Value Chain

As shown below, one tonne of crude steel is made from 0.92 tonnes of raw iron,

0.15 tonnes of iron scrap, and 0.02 tonnes of iron alloy.

By demand, the construction materials and machinery (including working tools

and equipment) industries accounted for a high share of the market at 54.7%

and 19.5%, respectively, in 2014. The automobile industry, which is believed to

be latent in growth, followed with a share of 6.5%.

China Iron and Steel Industry Value Chain

Source: Uzabase



09

China’s Iron and Steel Industry – Policy Trends

Influence from Policies

In China, it is not uncommon that government policies have a great impact on

an industry’s development course. The iron and steel industry is no exception,

being directly affected by the policies shown below.

Major Policies for Iron and Steel Industry

12th Five-Year Plan 13th Five-Year Plan

*Adjustment Plan for the Iron and Steel Industry

Content

- Comprehensive reorganisation of steel manufacturers - Strengthening R&D of high-technology materials

- Leading manufacturers taking predominance and forming market order through reorganisation - Effective utilisation of iron scrap - Improvement in energy-saving development and diminishing environmental pollution

Numeric Targets

- Top 10 companies’ output of crude steel should account for more than 50% of industry total by 2010 - Decrease output of steel to shift focus to high-intensity, erosion-resistant, and high-tech materials (as of 2011 products that meet advanced global standards accounted for less than 30% of total output) - Increase R&D expenses (R&D expenses of companies above the designated size should amount to 1.1% of their main business revenue; global average: 3%)

- Top 10 companies’ output should account for at least 60% of industry total by 2025; form 3–5 steel manufacturing conglomerates that have international competitiveness - Streamline collection, process, and distribution; increase the utilisation rate of iron scrap to 30% by 2025 - Decrease energy consumption to 560kg (converted into coal), water consumption to 3.8 cubic metres or less, and sulphur dioxide emission to 0.6 kg per tonne of crude steel output by 2025 - Improve productivity of major and mid-sized steel manufacturers to 1,000 tonnes/person and above, and that of advanced manufacturers to 1,500 tonnes/person and above - Increase R&D expenditure share to 1.7% and above - Increase penetration rate of Manufacturing Execution System (MES) to 80% and above - Generate sales from e-commerce with a share exceeding 20%

Achievement

- Reorganisation failed - Top 10 companies’ output accounted for 33.6% of industry total as of 2014 - Decrease in output failed - CNY 4 trillion economic stimulus package led to a flood of small- and medium-sized iron and steel mills in this industry

N/A

Institution of Disclosure

Ministry of Industry and Information Technology Ministry of Industry and Information Technology

Year of Disclosure

2005 2015

Source: by UZABASE based on various materials



10

China’s Iron and Steel Industry – Major Tasks and Issues

Chinese Iron and Steel Industry Reform: Major Remaining Tasks and Issues After the Twelfth Five-Year Plan

Tasks Issues

Overcapacity - Output capacity enhanced at a faster pace than reduction

Local governments extending support to local manufacturers

Streamlining and Reorganisation

- Standstill of integration progress Failure of mergers and acquisitions: Anshan Iron & Steel (CHN) and Benxi Steel (CHN); Baosteel (CHN) and Wuhan Iron and Steel (CHN); Hebei Iron & Steel (CHN) and local enterprises

- Strong reluctance from local governments (refer to the graph below about the situation in Hebei Province)

- Because SMEs play an important role in tax payment and providing job opportunities in local regions, governments tend to act behind the scenes to hamper the progress of mergers and acquisitions

Elimination of Ageing Facilities and Concentrated Introduction of New Facilities

- Deteriorated performance of major steel manufacturers

Energy-Saving and Emission Reduction

- Administrative punitive measures insufficient - Many SMEs maintain or even increase their energy consumption after paying a small fine - Back-scratching alliances between law enforcement bodies and local enterprises are not

uncommon, so actual punishment on manufacturers is negligible


Source: Uzabase

11974.36

2869.04 2704.51 2439.38 2377.01 2126.5 2088.36 1936.79 1760.14 1610.64

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Hebei Province: Output by Industry (2013)



11

It has proven difficult to enforce the reduction of production output and

stimulate M&A activity in Hebei Province. The reason for this is twofold: one,

because the iron and steel industry accounts for more than 25% of the region’s

total industrial output; and two, because 75% of steel manufacturers in the area

are state-run companies.



12

Chinese Iron and Steel Industry – Major Tasks and Issues

Since 2006, China has been gradually discarding ageing and outdated

equipment and closing down SMEs in an attempt to curb the output capacity of

the iron and steel industry.

However, despite such efforts in the elimination of outdated equipment, output

reduction has not been progressing as planned due to the number of enduring

small- and medium-sized iron and steel mills in Northern China and the

successive openings of new iron manufacturing plants in coastal regions.

Note that the overall statistics may not be highly accurate because the industry

lacks concentration and there are a large number of SMEs that have joined the

China Iron and Steel Association (CISA).

Output Reduction Plan and Results

Policy 12th Five-Year Plan 13th Five-Year Plan

Period 2011–2015 National People’s

Congress (2008–2012)

2016–2020

Targets

Iron: To reduce capacity by 48 million tonnes

Steel: To reduce capacity by 48 million tonnes

N/A

Results

As of 2011: Iron: reduced 31.92

million tonnes Steel: reduced 28.46

million tonnes

Iron: reduced 117 million tonnes

Steel: reduced 78 million tonnes

N/A

Trends of SMEs & Forecast

Local SMEs keep expanding and continue to increase output

Difficult to control SMEs because they remain unorganised

Credit crunches in local banks will lead to successive bankruptcies

Source: CISA



13

Chinese Iron and Steel Industry – Production Regions and Characteristics

Northern and Eastern China Predominant Production Regions, Accounting for Almost 70% of Overall Output

Northern China, centred on Hebei Province, and Eastern China, represented by

Jiangsu Province and Shanghai, are outstanding in terms of steel output.

Combined, they account for roughly 66% of overall output, highlighting the

concentration of the industry. By province, Hebei Province holds the largest

share of 25.34%, with its output standing at 165.54 million tonnes. It is followed

by Jiangsu Province (10.08%, 65.85 million tonnes), Liaoning Province (8.29%,

54.20 million tonnes), and Shandong Province (7.56%, 49.40 million tonnes).

Looking at the top five production regions, their combined share on a volume

basis has increased from 20% in 2000 to more than 55% as of end-2014 (latest

statistics), indicating a trend towards concentration.

Output Capacity by Region

Region Output Capacity (10,000 tonnes)

Share (%)

Northern China 23,554 36.05

Eastern China 20,145 30.84

Northeast China 6,760 10.35

Southern China 8,300 12.71

Southwest China 4,175 6.40

Northwest China 2,390 3.65

Total 65,324 100.00

Source: CEInet

0

20,000

40,000

60,000

80,000

100,000

10

,00

0 t

on

nes

China: Crude Steel Output by Region

Hebei Liaoning Jiangsu Shandong Shanxi Nationwide



14


Continued Shift of Facilities Towards Riverside and Coastal Regions

In addition to the opening of new production plants in coastal regions as

mentioned above, there has been a steady shift towards and expansion of

facilities in riverside and coastal regions. As of end-2014, riverside and coastal

regions recorded a combined crude steel output of 121.7 million tonnes,

accounting for 17.4% of the national total (refer to Table A). Moreover, adding

up the 95 million tonnes of output by production plants that had been

approved to move to riverside and coastal regions by September 2009 (refer to

Table B), it is estimated that at least 30% of national output will be shifted

towards riverside and coastal regions in the future.

Table A

Company Output Capacity (10,000 tonnes)

Port

Jiangsu Shagang 2,200 Jiangsu Port along the Yangtze River

Baosteel 2,000 Pudong Port

Wuhan Iron & Steel 1,700 Jiangsu Port along the Yangtze River

Ma’anshan Iron & Steel (Magang) 1,700 Jiangsu Port along the Yangtze River

Shougang Jingtang United Iron & Steel 1,000 Caofeidian Port

Rizhao Steel 1,000 Port of Rizhao

Nanjing Steel 700 Jiangsu Port along the Yangtze River

Anshan Iron & Steel 600 Port of Bayuquan

Handan Zongheng Iron & Steel 560 Huanghua Port

Ningbo Iron & Steel 400 Port of Ningbo

Tangshan Heavy Plate 160 Jingtang Seaport

Tangshan Delong Steel 150 Jingtang Seaport

Total 12,170



15

Table B

Company Capacity of Facilities to be Shifted Port

Tangshan Guofeng Iron & Steel 3,000 Caofeidian Port

Baosteel 2,000 Zhanjiang Port

Xinjing, Puyang, Wenfeng 1,500 Huanghua Port

Nanjing Steel 1,000 Port of Lianyungang

Shandong Iron & Steel 1,000 Port of Rizhao

Wuhan Iron & Steel 1,000 Port of Fangcheng

China Minmetals 300 Port of Yingkou

Total 9,500

Source: askci.com



16


Map of China’s Iron and Steel Manufacturing Sites




17

Chinese Iron and Steel Industry – Finding the Way Out: Minor Boost of Domestic Demand and Exports

Export Excess Output: Total Capacity 1.05 Billion Tonnes, Domestic Demand 0.52 Billion Tonnes

As shown in the graph below, the overall domestic demand for crude steel was

roughly 520 million tonnes (tentative calculation) in 2015. According to the

National Bureau of Statistics, the total nationwide output capacity was

estimated to reach around 1.05 billion tonnes in 2015. The actual effective

output was 840 million tonnes based on an assumed operation rate of 80%.

Based on simple calculation (excluding inventory), roughly 39% of output was

surplus, requiring disposal through exports and other means. Steel material

exports increased by 50.7% YoY to reach 93.926 million tonnes in FY2014. As

per CEInet data, the accumulated export volume of steel materials hit 112

million as of end-December FY2015.

Source: UZABASE



18

Driving Factors of Domestic Demand for Steel (2015)

Major Industries

Status-quo Demand Forecast (10,000

tonnes) Calculation

(10,000 tonnes)

Real Estate

Investment in real estate industry: CNY 1.06 billion (2015)

Total area sold: 1.24–1.27 billion

sq. metres (2015)

New areas of construction: 1.78–1.82 billion sq. metres

(2015)

New demand: 8,900–11,830 (take 10,500)

Indemnificatory residences:

2,200

Renovation of rural residences:

1,830

Total: 14,530

New demand: 8,900–11,830 (1.78–1.82 billion sq. metres (new areas of

construction) ｘ50–65 kg)

Indemnificatory residences: 2,200

(60 sq. metresｘ50 kg/sq. metresｘ7.40

million households)

Renovation of rural residences: 1,830

(100 sq. metresｘ50kg/sq. metresｘ3.66

million households)

Automobiles (60–70% of

vehicle)

Automobile manufacturing accounts for 6–7% of overall

steel demand in China, relatively low compared to OECD

countries (10%)

For manufacturing: 4,130

For repair: 2,400

Total: 6,530

(as per the Ministry of Public Security of the PRC)

For manufacturing: 4,130 (refer to Table A below)

For repair: 2,400

0.155 (0.15–0.16, incl. parts) ｘ 154 million

vehicles (ownership as of 2014)

Railway

Investment in railway construction: CNY 800 billion

(2015) Total distance constructed in

2015: 8,000 km (CISA forecast: CNY 650 billion)

2,200 33,300 tonnes of steel materials consumed in CNY 100 million worth of investment

CNY 650 million ｘ 33,300 tonnes/CNY

million

Private Airports 25 airports under construction in 2015, equivalent to CNY 300

billion in value

300 Around 10,000 tonnes of steel materials consumed in CNY 1 billion worth of

investment

Public Transport Facilities

(rails, stations, and relevant

facilities)

Total distance of rail constructed in 2015: 1,000 km

3,200 Relevant facilities: 3,200 Around 10,000 tonnes of steel materials

consumed in 1 km of rail (incl. stations and relevant facilities) that is worth CNY 100

million in value

Road Construction

50,000 km of road constructed in 2015

(motorway: 23,300 km)

1,600 Motorway: 1,000

(23,300 km ｘ 450 kg/km)

General road: 600

(26,700 km ｘ 450 kg/km)/2

(half the amount of steel materials used for motorway construction)

Machinery Manufacturing

(engineering equipment,

heavy machines for mining, agricultural industries)

140 million tonnes of steel materials consumed in

machinery manufacturing industry in 2014

14,000 Levelling off from the 2014 levels

Shipbuilding Completed: 36.29 million tonnes

(-16.3%)

1,400 Levelling off from the 2014 levels



19

New orders placed: 51.02 million tonnes (-25.9%)

Orders in-hand:

14.97 million tonnes (+15.1%)

Household Appliances

Washing machines: 72.00 million units

Air conditioners: 160 million

units

Refrigerators: 120 million units

8,310 Washing machines: 1,512

(72.00 million units ｘ 0.21 kg/unit)

Air conditioners: 4,800

(160.00 million units ｘ 0.30 kg/unit)

Refrigerators: 4,080

(120.00 million units ｘ0.34 kg/unit) / 0.80

Total 520.70 million tonnes


Table A: Estimated Number of Automobiles Sold by Vehicle Type and Steel Consumption (2015)

Vehicle Type

Passenger Vehicles Commercial

Vehicles

Light Automobile

SUV MPV Station Wagon

Trucks Bus

Number of Vehicles Sold (10,000 units; estimate)

1,251 510 258 106 323 65

YoY Growth (%) 1 25 35 -20 1.3 6.5

Steel Consumption (tonne/unit) 1.16 1.55 1.55 0.88 3.42 4.49

Steel Consumption (10,000 tonnes/vehicle type)

1,451.16 790.5 399.9 93.28 1,104.7 291.85

Total Consumption (10,000 tonnes) 4,131.40




20

Chinese Iron and Steel Industry – Elimination of Overcapacity by 2020

Gap Between Excess Output Capacity and Demand for Crude Steel to be Filled by 2020

According to OECD data, the excess output capacity (output capacity - apparent

consumption) of crude steel was estimated to be 336–425 million tonnes in

China as of 2014, accounting for roughly 50–60% of total global overcapacity.

Furthermore, because the expansion in supply has outpaced domestic demand,

the balance between supply and demand will continue to deteriorate in China.

In response to such trends, the Chinese government has pledged to reduce

steel production by 100–150 million tonnes over a five-year period starting

from 2015. As shown in the graph below, it is believed that the overcapacity

issue will not be solved until 2020.

(The calculation is based on opinions from industry specialists which state that

by 2020, output capacity will be decreasing at the speed of 100 million tonnes

per annum; apparent consumption will increase to 1.0 billion tonnes; and the

facility operation rate will remain at the current industry average of 80%.)


-10,000

0

10,000

20,000

30,000

40,000

50,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

China: Gap Between Supply and Demand (million tonnes)

Output Capacity of Crude Steel Apparent Consumption Gap



21

64.0%

66.0%

68.0%

70.0%

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000China: Crude Steel Manufacturing Industry (million tonnes)

Production Volume Output Capacity Apparent Consumption Operation Rate



22

Chinese Iron and Steel Industry – Involvement in Global Merger Trends

Large-Scale Mergers Expected to Take Place from 2015 Onward

Looking back on the past four rounds of global mergers in the iron and steel

industry, it is a common phenomenon that mergers and reorganisation take

place when the industry is exposed to severe circumstances, with the

subsequently occurring mergers and reorganisation activities in turn leading to

recovery in the industry.

At present, the Chinese iron and steel industry is struggling with a number of

factors, most notably overcapacity issues. Moreover, the industry has a low

concentration compared to OECD countries, and players operate with negligible

profits. Such an environment is believed to be conducive for mergers and

reorganisation activity in the industry.

Mergers in Iron and Steel Industry

Source: Uzabase



23

Chinese Iron and Steel Industry – Speculations of Local Governments and Enterprises

Various Speculations Among Enterprises and Local Governments

A number of companies in the iron and steel industry have been looking toward

mergers and reorganisation as a way to break out of the adverse industry

circumstances. However, it appears difficult not only for SMEs but also for

major players in the industry to realise such merger plans.

As of end-2014, there are six mega manufacturers in the Chinese iron and steel

manufacturing industry, each of which boasts an annual output exceeding 30

million tonnes. These are Hebei Iron & Steel (CHN), Baosteel (CHN), Jiangsu

Shagang (CHN), Anshan Iron & Steel (CHN), Wuhan Iron & Steel (CHN), and

Shougang (CHN). In comparison, there are 21 manufacturers that each have an

annual output of 10–20 million tonnes. Altogether, their output (approx. 0.82

billion tonnes) accounted for 72% of the national total (1.14 billion tonnes).

One of Beijing’s principle guidelines for the iron and steel industry is in spurring

the consolidation and reorganisation of manufacturers. However, such plans

have encountered numerous setbacks because local governments—a unique

political feature of China—are reluctant to carry through, owing to financial

concerns. The early-stage failure of the merger between Baosteel and Wuhan

Iron & Steel was another factor discouraging the progress of industry

consolidation and reorganisation.

In addition, policies stipulated by the central government often do not

penetrate to regional levels. This is because regional governments generally

offer local entities separate favourable policies (for example, in regards to

corporate taxation) based on their “locality”, and many aspects of the process

lack transparency.



24

Chinese Iron and Steel Industry - Industry Players

Merger Plans Carried Out Behind the Scenes; However, Successful Deals Remain to be Seen

The basic form of mergers and acquisitions is that a major manufacturer either

forms another industry major or pulls SMEs under its umbrella. However,

because major manufacturers are state-run companies, M&As require approval

from provincial authorities, which increases the likelihood that the deal will be

called to a halt. This issue requires further attention going forward. Find below

an overview of current merger deals—including buyers and sellers—based on

publicly disclosed information.

In particular, the movements of steel manufacturers in Northern China (i.e.

Hebei Iron & Steel, Shougang) and Eastern China (i.e. Baosteel, Jiangsu Shagang,

Wuhan Iron & Steel, Ningbo Iron & Steel) have been attracting attention. Note

that the merger between Baosteel and Wuhan Iron & Steel has been in an

impasse. If the deal works out, however, it will create a mega manufacturer

with an annual output capacity of over 100 million tonnes, and will likely

expedite the progress of other mergers in the industry as well.

Aberrant Operation Rate Indicating Chinese Major Manufacturers’ Intentions: No Output Reduction Despite Gloomy Sales

As shown in the graph below, each major manufacturer exhibits an abnormally

high operation rate of more than 80%. However, in spite of the frustrating

market, each company has been playing chicken in a struggle to survive, with

the intention of maintaining high production rates until their competitors

collapse. This is another factor contributing to the extraordinary operation rate.

According to a survey conducted by mysteel.com, a website specialising in iron

and steel, the average debt ratio of the 67 steel manufacturers surveyed in

2014 reached a dangerous level of 68.35%, and multiple companies have

exceeded 100% in terms of debt ratio.



25

Chinese Iron and Steel Industry – Industry Players

Leading Chinese Iron and Steel Manufacturers (2014)

Company Corporate

Type

Annual Crude Steel

Output Capacity (10,000 tonnes)

Annual Crude Steel

Output (10,000 tonnes)

Operation Rate (%)

Debt Ratio (%)

Specialised Industries

& Products

Primary Sales

Regions

Possible Merger & Deal Targets

Major Trade

Partners (JPN)

Hebei Iron & Steel

State-run 5000 4709 94.18 73.42 Railway vehicles and automobiles Spring steel

Northern China

※Small enterprise

s Shougang

Mitsui O.S.K. Lines

Baosteel State-run 5500※

Estimate 4335 78.8% 45.7%

Automobiles and automotive parts Cold- and hot-rolled steel sheets Aluminium steel

Nationwide

Wuhan Iron & Steel,

Ningbo Iron & Steel,

Jiangsu Shagang

Mitsui & Co.

Jiangsu Shagang

State-run 3920 3533 90.1% 41.0% Construction Carbon fibre bar steel

Eastern China

Huaigang Special Steel

Sojitz

Anshan Iron & Steel

State-run 4500 3435 76.3% 47.2%

Automobiles and automotive parts Cold- and hot-rolled steel sheets

Northeast China

Benxi Steel NYK Line

Wuhan Iron & Steel

State-run 3350 3305 98.7% 61.9%

Automobiles and automotive parts Cold- and hot-rolling steel sheets

Central China

Baosteel

Nippon Steel &

Sumitomo Metal

Shougang State-run 4000※

Estimate 3078 77.0% 61.1%

Automobiles and automotive parts Cold- and hot-rolled steel sheets

Northern China

Hebei Iron & Steel

Toyota Motor

Shandong Iron & Steel

State-run 3000 2334 77.8% 67.2%

Automobiles, petroleum, railway, construction, shipbuilding, household appliances Cold- and hot-rolled steel sheets, oil well pipes

Eastern China

Rizhao Steel

Ma'anshan Iron & Steel

(Magang)

State-run 2050 1890 92.2% 62.2% Construction materials Wire rods, rebars

Eastern China



26

Bohai Steel

State-run 2400 1849 77.0% N/A Construction, oil well pipes

Northern China

Hanwa

Benxi Steel State-run 2400 1626 67.8% 67.7%

Military relevant, marine, railway transport Special steel, rails

Northeast China

Anshan Iron & Steel,

Panzhihua Iron & Steel

Mitsubishi Heavy

Industries

Fangda Special Steel

State-run 1500 1364 90.9% 65.5%

Construction materials/rebars Automobiles/spring steel, Cold- and hot-rolled steel sheets

Eastern China

Xinyu Iron & Steel

Baogang State-run 1500※Esti

mate 1072 71.5% 80.5%

Railway rails, rare earth base alloy

Northern China

Mitsubis

hi Hitachi

Valin Steel State-run 2200 1538 69.9% 79.9%

Shipbuilding, automobile, large machinery Steel sheets, special steel, oil well pipes

Central and

Southern China

Shaogang Songshan,

Wuhan Iron & Steel

Mitsubishi Fuso Truck

and Bus, Isuzu

Motors

Anyang Iron & Steel

State-run 1000 1089 108.9% 76.3%

National defence, airplanes, traffic, shipbuilding related, oil well pipes, construction

Central and

Southern China

Wuyang Mining

Hebei Jingye Group

Private 1200 1054 87.8% 87.8%

Shipbuilding, road construction, construction

Northern China

Hohhot Steel

Jianlong Group

Private 1735 1526 88.0% N/A Automobiles and machinery manufacturing

Northern China

Haixin Iron & Steel

Mitsui & Co.

Rizhao Steel

Private 1350 1140 84.4% 88.3%

Construction for civil and industrial use, railway bridges, public facilities, nuclear facilities Wire rods, special steel

Eastern China


Jiuquan Iron & Steel

State-run 1000 1034 103.4% N/A

Automobiles, shipbuilding, construction Steel sheets, special steel

Northwest China

Mitsubishi

Hitachi Power

Systems

Taiyuan Iron & Steel

State-run 1500 1072 71.5% 68.9%

Automobiles, military relevant Special stainless steel

Northern China

Xishan Coal

Electricity

Nippon Yakin Kogyo

Total 49105 40983 83.5% 66.1%



27

Chinese Iron and Steel Industry – Each Company Accelerating Entries into Overseas Markets Despite Anti-dumping Measures

Each Country Slapping Anti-dumping Duties on China to Protect Domestic Industries; Chinese Players Establishing Factories Overseas

Faced with low-priced Chinese exports, many countries have levied anti-

dumping taxes in an attempt to protect their own domestic enterprises. To

tackle the situation, Chinese industry majors have turned to establishing on-site

factories in overseas locations.



28

Anti-dumping Probes and Duties Against Chinese Steel Exports

Region Country Target Products Investigation Start

Date Implementation

Date Tax Rate

Southeast Asia

Malaysia

Stranded wires 5 January 2014 12.39%, 5 years

Reinforced Concrete (RC) 1 September 2014 N/A

Hot-rolled coils 17 October 2014 1 February 2015 14.87–29.37%, 120

days

Hot-rolled steel sheets 14 December 2014 23.93%, 200 days

Reinforced Concrete (RC) 1 January 2015 N/A

Hot-rolled coils, checkered plates, pickled

coils 1 February 2015 N/A

Cold-rolled stainless steel sheets

1 April 2015 N/A

Mid- to thick steel plates 1 July 2015 3 years

Coloured steel plates 1 September 2015 N/A

Pre-coated/coloured coils 1 April 2015 4 January 2016 52.10%, 5 years

Cold-rolled steel sheets 1 August 2015 3 January 2016 4.58–23.78%, 120

days

Thailand

High carbon wire rods 17 May 2014 5.17–33.98%,

5 years

Hot-rolled non-alloy steel flat products

30 January 2014 1 January 2015 N/A

Low carbon wire rods 1 January 2015 1 September 2015 N/A

Clad materials 1 February 2015 N/A

Hot-rolled coils 1 May 2015 3.45–128%, 5 years

Stainless pipes 1 September 2015 Not disclosed

Indonesia

Ferrous and non-alloy steel sheet

26 May 2014 3 years

Shaped steel (H, I) 10 October 2014 3 years

Irregularly wound hot-rolled bars and rods

1 January 2015 N/A

Cold-rolled stainless steel 22 December 2014 N/A

Shaped steel (H, I) 1 February 2015 3 years

Iron and steel 1 June 2015 20%

Wire rods 1 August 2015 3 years

Vietnam

Cold-rolled stainless steel (coils and/or sheets)

7 October 2014 4.64–6.87%

Alloy billets 1 October 2015 10%



29


Date Implementation

Date Tax Rate

Asia

South Korea

H-shaped steel 29 December 2014 1 May 2015 28.23–32.72%, 5

years

Taiwan Cold-rolled stainless steel 15 August 2013 5 March 2014 38.11%, 5 years

India

Cold-rolled stainless steel sheet (400 series)

19 September 2014 N/A

Ferrous, alloy, and non-alloy (non-iron casting and

stainless) seamless steel pipes and hollow

structural sections

11 March 2014

2.5 years (1st year 25%, 2nd year 15%, 3rd year (6-month)

5%)

Hot-rolled stainless steel sheets (304 series)

11 March 2014 1 June 2015 5 years

Cold-rolled Cr stainless plate steel (400 series)

1 March 2015 N/A

Seamless steel pipes and hollow structural sections

1 July 2015 N/A

Iron and steel 1 September 2015 20%

Hot-rolled coil 1 September 2015 20%

Hot-rolled plate steel, mid to thick plate

1 December 2015 Not disclosed

Cold-rolled stainless plate steel

1 December 2015 5 years

Pakistan

Billets 1 August 2015 N/A

Cold-rolled plate steel 1 August 2015 N/A

Zinc-galvanised plate steel 1 August 2015 N/A

Wires 1 October 2015 N/A

Iran Steel materials 1 February 2015 10–20%


Date Implementation

Date Tax Rate

Oceania

Australia

Hot-rolled plate steel 1 March 2015 1 August 2015 N/A

Steel bars 1 March 2015 1 December 2015 N/A

Welding tubes 1 March 2015 1 April 2015 N/A

Zinc-galvanised steel and alloy-coated steel sheets

1 June 2015 N/A

Deep drawn stainless steel sinks

1 December 2015 N/A

Deformed bar steel 1 December 2015 N/A

Rod in coil 8 February 2016 N/A



30

Region Country Target Products Investigation

Start Date Implementation

Date Tax Rate

Africa

Egypt Deformed bar steel 14 October 2014 1 May 2015 CIF7.3%

(tax rate < EGP 290/tonne), 3 years

Morocco Cold-rolled steel

sheets and clad plates 11 June 2014 N/A

Guatemala Zinc-galvanised steel

sheets

1 January 2015 N/A

24 March 2014 N/A

Peru Hot-rolled steel pipes 1 May 2015 N/A

Zambia Iron and steel 1 July 2015 N/A

South Africa Iron and steel 1 September 2015 10%

Algeria Deformed bar steel,

wire rods, steel pipes, billets

1 October 2015 30%



Date Tax Rate

South America

Brazil

Electric steel 5 July 2014 USD 132.5–567.16/tonne

Seamless steel pipes 31 October 2014 USD 908.59/tonne, 5 years

Thick clad plate steel and boron steel

plates (mid to thick)

19 December 2014 N/A

Coated flat steel 1 January 2015 N/A

Boron steel plates (thick)


Seamless carbon fibre steel pipes


Seamless steel pipes 1 December 2015 N/A

Stainless sinks 1 May 2015 N/A

Hot-rolled steel sheets

1 June 2015 72.16–78.96%

Cold-rolled steel sheets

24 April 2014 N/A

Columbia

Hot-rolled wire rods 1 January 2015 N/A

Hot-rolled galvanised steel sheet

6 March 2014 USD 824.57/tonne; when

this price exceeds FOB price, take the price difference.

Wire rods 28 March 2014 N/A

Hot-rolled wire rods 1 July 2015 N/A

Hot-rolled alloy wire rods, bar steel

1 October 2015 N/A

5 January 2016 Period extension

Argentina Duct affiliates 1 October 2015 N/A

1 November 2015 N/A

Dominica Hot-rolled bar steel 1 January 2015 6 months



31




Date Tax Rate

North America

USA

Electric Steel 25 September 2014 159.21%

Non-oriented electromagnectic steel sheets

6 November 2014 407.52%

Carbon wire rods 15 December 2014 106.19–110.25%

Non-casting duct affiliates 1 January 2015 75.50%

Oil well pipes 1 April 2015 N/A

Steel piles 1 April 2015 N/A

Nail-free steel shelves 1 March 2015 N/A

Deep drawn stainless steel sinks

1 May 2015 N/A

Steel strands for prestressed concrete structures

(prestressed concrete steel) 1 July 2015 N/A

Zinc-galvanised plate steel 1 June 2015 N/A

Nail-free steel shelves 1 August 2015 N/A

Cold-rolled steel sheets 1 August 2015 1 September 2015 N/A

Steel piles 1 September 2015 N/A

Iron bars 1 October 2015 N/A

Wire hangers 1 November 2015 N/A

Rebars 1 November 2015 N/A

Erosion-resistant steel 1 December 2015 255.80%

Carbon steel wires and bars 1 November 2015 N/A

Seamless oil well pipes, etc. 1 December 2015 N/A

Reinforced concrete (RC) 8 February 2016 N/A

Mexico

Seamless pipes 8 January 2014 USD 1569.92/tonne,

additional charge

Carbon steel welded joint 1 July 2015 5 year extension

Wire rods 1 September

2015 N/A

Wire rods 1 August 2015 N/A

Iron and steel 1 September 2015 Adjustment on import

tax

Concrete nails 1 November 2015 N/A

Hot-rolled steel sheets 1 December 2015 N/A

Cold-rolled steel sheets 1 December

2015 N/A

Wire rods 1 December 2015 N/A

Zinc-alloy door knobs 1 December 2015 N/A



32



Date Tax Rate

Europe

EU

Oil well pipes 31 March 2014 N/A

Electric steel 14 August 2014 1 October 2015 N/A

Deformed bar steel 1 April 2015 N/A

Fatigue-resistant concrete bar steel 1 April 2015 5 January 2016 9.2–13.0%, 6 months

Silicon steel 1 May 2015 28.70%

Cold-rolled steel sheets 1 May 2015 8 February 2016 6 months

Steel strands for pre-stressed concrete structures (pre-stressed concrete steel)

1 June 2015 N/A

Stainless flat steel 1 August 2015 N/A

Steel pipe parts 1 October 2015 1 October 2015 N/A

Castable rebars and joints 1 November 2015 N/A

Wire rods 1 November 2015 N/A

Thick steel plate of non-alloy and other alloy

1 February 2016 N/A

Seamless pipes 1 February 2016 N/A

EEC Stainless cutlery 1 January 2015 15.56–74%

Cold-rolled stainless steel sheets 1 March 2015 10.9–25.2%

Ukraine

Seamless pipes and high-pressure pump pipes

1 March 2015 N/A

Seamless stainless pipes 29 November 2014 41.07%, 5 years

Turkey Hot-rolled coils 1 January 2015 N/A

Cold-rolled stainless steel 1 August 2015 N/A



33

Overseas Entries of Leading Chinese Manufacturers

Region Company Country Entered

Year of Entry

Investment Size Output

Capacity

Asia

Rizhao Steel Myanmar, the

Philippines 2015 Established an office N/A

Anshan Iron & Steel Indonesia 2015 CNY 800 million 5 million tonnes

Nanjing Iron & Steel Indonesia 2014 CNY 1.3 billion 1 million tonnes

Anshan Iron & Steel Japan, South

Korea 2009

Signed a long-term agreement on marine transport of iron ores with STX

(KOR) and Mitsui O.S.K. Lines (JPN) N/A

Europe

Bohai Steel British Virgin

Islands 2015

Operating international trade and commercial consulting services of bulk

commodities like iron ores N/A

Ma'anshan Iron & Steel

France 2014 Acquired SAS Valdunes (FRA) for EUR 13

million N/A

Hebei Iron & Steel Switzerland 2014 Increased its stock share in Duferco

DITH (CHE) to 51% N/A


Tangier, Morocco

2014 USD 150 million 0.25 million

tonnes

Africa

Xinxing Ductile Iron Pipes

Ethiopia 2015 Procured 100,000 tonnes of ductile cast

iron pipes 3 million tonnes

Hebei Iron & Steel South Africa 2014

Owned 270 million tonnes of high-quality iron resource, 200 million

tonnes of copper resource, and world third largest vermiculite ore reserve

5 million tonnes


Sierra Leone 2012 USD 1.5 billion 6.77 million

tonnes

Wuhan Iron & Steel Liberia 2010 USD 68.46 million 10 million

tonnes

South America

Wuhan Iron & Steel Brazil 2010 Jointly established a factory with Prumo Logistica (BRA; formerly known as LLX

Logistica) by investing USD 5 billion N/A

Wuhan Iron & Steel Brazil 2009 Acquired MMX from EBX Group (BRA)

for USD 400 million N/A

Oceania


Australia 2015 CNY 18.0 billion N/A

Anshan Iron & Steel Australia 2013 Increased its stock share in Karara Iron

Ore Mine (AUS) to 52.16% N/A

Baosteel Australia 2012 Iron ore reserve reached 5.2 billion

tonnes 1.50 million

tonnes

Pangang Group Vanadium Titanium

& Resources Australia 2011

Iron ore reserve reached 3.67 billion tonnes

10 million tonnes

Anshan Iron & Steel Australia 2009 Increased its stock share in Gindalbie

Metals (AUS) to 36.28%, becoming the largest shareholder of this company

N/A

North America

Tianjin Seamless Steel Tube & Pipe

USA 2014 USD 1.0 billion N/A



34

North America

Hebei Iron & Steel Canada 2012 CNY 1.2 billion 4.80 million

tonnes

Anshan Iron & Steel USA 2010 Four rebar manufacturing plants and

one electric steel factory N/A




35

Chinese Iron and Steel Industry – Steel Material Prices Dropping, Likely to Plunge Even Faster

Steel Material Prices on Continuous Downtrend; Market Deteriorating Since Early 2015

Compared to end-2012, the prices of major steel materials dived to lower than

half of those of October 2015. Given that concrete policies to back the Chinese

construction industry have yet to be finalised, these prices are highly expected

to plunge further.

1,000.00

1,200.00

1,400.00

1,600.00

1,800.00

2,000.00

2,200.00

2,400.00

2,600.00

2,800.00

3,000.00

Iron Scrap (Raw Material)

Beijing Dalian Guangzhou Shanghai Xi’an

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

Crude Steel/Raw Iron (L8–10)

Kunming Guiyang Longyan Anyang Yicheng Tangshan

Wu’an Linyi Zibo Ma’anshan Harbin



36

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

Billet (Q235)

Jiangsu Shandong Tangshan Shanxi

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

Steel Rebar (HRB400 20mm, Nationwide)

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

Wire Rod (High Tensile 6.5)

Chongqing Wuhan Shenyang Shanghai Guangzhou Tianjin Beijing



37


1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

Hot-rolled Steel Sheet (4.75mm Coil)

#REF! Wuhan Shenyang Shanghai Guangzhou Tianjin Beijing

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

5,000.00

5,500.00

Cold-Rolled Steel Sheet (1.0mm Coil)

Wuhan Chongqing Shenyang Shanghai Guangzhou Tianjin Beijing

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

Mid to Thick Plate Steel (20mm)

Chongqing Wuhan Shenyang Shanghai

Guangzhou Tianjin Beijing



38

Chinese Iron and Steel Industry – A Harsh Winter for the Industry: From the Perspective of Revenue Model

Narrow Margin with High Turnover No Longer Attainable for Chinese Steel Manufacturers

As demonstrated in the graph “Profit Model Calculation (Tentative)” below, the

iron and steel manufacturing industry is already trapped in a negative business

cycle, in which manufacturers cannot gain profits even if they manage to sell

their products. A variety of products ranging from pig iron and billets to wire

rods and plate steel have seen manufacturing costs exceed selling price. In

particular, steel rebar, which is mostly used in the real estate construction

industry, is in extreme trouble with a unit price of CNY 350–400 per tonne.

Moreover, given the forthcoming bubble burst in the real estate industry, as

well as the increase in the number of vacant properties in Tier 2 and 3 cities,

where real estate sales have been unfavourable, it can be said that a recovery in

price is unlikely due to extremely low demand.


-500

-400

-300

-200

-100

0

100

200

300

May/1

4

Jun

/14

Jul/1

4

Au

g/14

Sep/1

4

Oct/1

4

No

v/14

Dec/1

4

Jan/1

5

Feb/1

5

Mar/1

5

Ap

r/15

May/1

5

Jun

/15

Jul/1

5

Au

g/15

Sep/1

5

Oct/1

5

No

v/15

Raw Iron Billet



39



Basic Profit Model

Raw iron cost =[Iron ore price on a dehydrated base / Water (0.92) ∗ Iron ore blended (1.6) + Coke price ∗ Coke blended (0.5)]

Process cost

Crude steel cost = [Raw iron cost ∗ Raw iron blended (0.96) + Iron scrap ∗ Iron scrap blended (0.15)]

Crude steel process cost (0.82)

-500

-400

-300

-200

-100

0

100

200

May/1

4

Jun

/14

Jul/1

4

Au

g/14

Sep/1

4

Oct/1

4

No

v/14

Dec/1

4

Jan/1

5

Feb/1

5

Mar/1

5

Ap

r/15

May/1

5

Jun

/15

Jul/1

5

Au

g/15

Sep/1

5

Oct/1

5

No

v/15

Rebar High speed wire rods

-1000

-800

-600

-400

-200

0

200

400

May/1

4

Jun

/14

Jul/1

4

Au

g/14

Sep/1

4

Oct/1

4

No

v/14

Dec/1

4

Jan/1

5

Feb/1

5

Mar/1

5

Ap

r/15

May/1

5

Jun

/15

Jul/1

5

Au

g/15

Sep/1

5

Oct/1

5

No

v/15

Hot-rolled steel Cold-rolled steel Mid to thick plate steel



40

Chinese Iron and Steel Industry – Eastern China: Product Unit Price Relatively High, Expected to Recover Soon

Market in Eastern China Expected to Recover Sooner than Northern China

In regard to regional price difference, steel products—for example rebar and

hot-rolled steel sheets—in Northern China (Beijing), where the overcapacity

situation is more severe, have a lower unit price compared to Eastern China

(Shanghai). The overall recovery for the Northern Chinese market is also slow.


Note: Price difference = Price (Shanghai) - Price (Beijing)

-200

-100

0

100

200

300

400

500

Jul-1

3

Au

g-13

Sep-1

3

Oct-1

3

No

v-13

Dec-1

3

Jan-1

4

Feb-1

4

Mar-1

4

Ap

r-14

May-1

4

Jun

-14

Jul-1

4

Au

g-14

Sep-1

4

Oct-1

4

No

v-14

Dec-1

4

Jan-1

5

Feb-1

5

Mar-1

5

Ap

r-15

May-1

5

Jun

-15

Jul-1

5

Au

g-15

Sep-1

5

Oct-1

5

No

v-15

Price difference of rebar Price difference of hot-rolled steel sheets



41

Chinese Iron and Steel Industry – Steel Material Exports Increasing, While Imports Sluggish

High-End Market Demand Highly Dependent on Imports, However Some Enterprises Are Introducing High-End Production Facilities

Currently, some high-end markets in China (e.g. shape memory alloy and

automotive security components) are forced to rely on imports for steel

material.

As a result, some industry majors have been introducing production facilities for

such materials from overseas through large-scale investment. It is forecast that

from 2013 onward, exports will continue to expand, while imports will level off

until a stable domestic supply of such materials is achieved.

Source: CEInet

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

USD

10

,00

0

Imports and Exports of Steel Materials

Imports Exports



42

Looking Ahead: Future Trends

Industry players will likely focus more on overseas consumption than domestic

demand, and favourable government policies should spur companies to

increase the scope of their exports through expansion into global markets.

Stricter local regulations and the subsequent increase in M&A activity will see

the emergence of mega manufacturer groups, each with an annual capacity of

more than 100 million tonnes. These mega manufacturers will have a focus on

Northern China, Eastern China, and Southern China, respectively.

There is also a need for structural reform, whereby China must reduce its

dependence on the construction industry, which currently generates almost

60% of demand for steel materials, and instead look toward development of

high-end steel materials used in industries such as automotive security

components, aerospace, and nuclear facilities, with the aim of achieving a

stable domestic supply of such materials. (Some observers may argue that what

China lacks is not the technology and facilities required for these materials, but

rather proper management processes).

Finally, the government must implement price controls for the steel materials

industry. The government should actively employ itself in the pricing system,

aiming to reform the current regional price forming mechanism and establish a

new one that ensures nationwide price stability.

Source: by UZABASE



43

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Data & Analytics

Chinese Iron and Steel Industry: Large-Scale Mergers to Ease Overcapacity