China’s Steel Industry:
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China’s Steel Industry: A New World Reality. SBB Dubai 3 September 2007 Roger Manser SBB Global Editor. Structure of Presentation. How is China changing? How is China changing the world steel industry? Some conclusions. (1) How is China changing?.

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SBB Dubai 3 September 2007 Roger Manser SBB Global Editor

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China’s Steel Industry:

A New World Reality

SBB Dubai 3 September 2007

Roger Manser SBB Global Editor


Structure of Presentation

  • How is China changing?

  • How is China changing the world steel industry?

  • Some conclusions


(1) How is China changing?

  • Becoming a manufacturing powerhouse

  • Looking for self-sufficiency

  • Investing in urbanisation/ new infrastructure

  • Consequences in China for steel:

  • Strong growth in production and consumption

  • A growing excess of production over consumption

  • Slow consolidation/continuing fragmentation


China- a new Workshop of the World


Looking to be self-sufficient

Three Gorges Dam 3m+ tonnes


Construction takes 200m t/y= 50-60% of China’s consumption


2000-2008f

19 %/ yr

in Million tonnes

1980-1999

7.1 % p.a.

1949-1979

13.3 % p.a.

Strong Growth in Production

Crude Steel Output 1949 – 2008f


Strong Domestic Consumption

Million tonnes

2000-2008f:

16%/ yr


Fragmentation Continues

TypicalProduction Chge

Output 20052006 %

Top 10 Mills5-23m131.1145.9 +11.3

Top 11-20 Mills 3-5m56.163.9 +14.0

Other Reporting* 1-3m103.9125.3 +20.6

Non Reporting* <1m64.783.6 +29.2

* Around 75 companies report to CISA

Source: CISA, SBB


But Some M+A at the Top-End

Shougang 11m

Tangshan 19m

Caofeidian 5m

Baosteel 23m

Anshan 15m

Bayi 4m

Benxi 7m

Handan 5m

Anben

Kunming 5m

Shagang 15m

Wuhan 14m

Source:SBB


How is China changing the world steel industry?

  • Higher raw material prices

  • New investment, mainly in flats

  • Import substitution ….. now exports

  • Financialization, and global M+A

  • Defensive moves


How China is changing the world

CHINA’S DEVELOPMENT

Investment

Commodity Price

Impact

Steel

Trade

Impact

Financial

Impact

Defensive and Other Reactions


Rising iron ore prices

$ cent/dmtu

Australian iron ore price ex-port fob (SBB)


New steel + ore investment

$35bn

Source: NBS


New rolling capacities 2007-2009

Total 175m t/y

Source: SBB


Import Substitution….now exports

HDG Imports are beginning their fall, with low quality HDG being replaced

HRC Imports well on their way to being replaced

Source: CISA, SBB


Fall in Imports; Rise in Exports

Tonnes (m)

Source: CISA, SBB


Some reported major plate/HRC investments (t/y): for start-up: 2007/08

Caofeidian +5.5m

Anshan+5m

Benxi +4m

Handan Zongheng +6m

Beitai +4m

Handan +5.5m

Tianjin +3.8m

Rizhao +5m

Anyang +4m

Baosteel +3.7m

Maanshan +5m

Ningbo +4m

Source:SBB


Threat from Chinese Exports

SBB estimates

Producer-led pricesinc High Strength, Tinplate, HG Flats, HG Pipe, Most Stainless/ Specials

Most at threat

13%

27%

10%

Producer-influenced pricesinc Other HG Flats, Some Beams, Other Stainless etc

Moderate threat

48%

Commodity pricesinc Bars, Rods, Most Sections, Other Flats (for construction), Other Pipe

Quality: grade, dimension, market etc


Demand Prices Profits M+A Finance

2003-6: Global consolidation

2001-5: Steel suppliers earn more

  • ArcelorMittal

  • Tata Corus

  • Essar Algoma

  • SSAB Ipsco

  • NLMK Duferco


Open to Foreign M+A

Dislike of Foreign M+A

Dislike of Foreign M+A by Companies


SBB’s Conclusions for China:

  • A slow-down in production and consumption growth

  • No real restructuring through M+A

  • Supply side export controls?

  • Smaller mills may soon face squeeze

  • BUT

  • Crude production soon @ 500m t/y

  • Some decline in exports, in due course


SBB’s Conclusions for China and the World

  • Demand strongest in emerging markets

  • Three scenarios:

    • Insufficient new capacity globally

      • Growth in CN exports/AD+CVD

    • Stronger RMB, curbed GDP, licences

      • Decline in exports

    • Decline in global GDP growth (CN )

      • Prices weaken


Other Pointers for the Future

  • Higher raw material prices for some time

  • Growth outside Europe - GHGs

  • More complex global supply chains

    • More differentiation in finished qualities

  • More price volatility/shorter cycles

    • Reference prices

  • Global M+A less likely

    • But more local M+A probable


THANK YOU

Have you got a China steel map yet?

US map also available


For a copy of the presentation:

e-mail [email protected]


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