Business

Baosteel Group Corp, China’s top mill, is facing its toughest period in history as the economic downturn weighed on steel markets, an executive said, and traders believed that the company plans further price cuts.

Amid unfavorable economic and market conditions, domestic and international steel prices had plunged over the past months while inventories mounted, forcing mills globally to slash output.

“The crisis has led to substantial falls in output, sales and economy of scale for Baosteel Group, which has entered its most difficult time in history,” a company newsletter quoted President He Wenbo as saying yesterday. The group was founded in 1978.

Meanwhile, its listed unit, Baoshan Iron & Steel Co, planned a further cut in product prices for January by 18 percent, according to traders. The Shanghai-based mill will slash prices for its main hot-rolled products by 700 yuan for January from December’s level, a further sign of a dim outlook. The company has cut prices three times in the current quarter.

The price cuts may incur a “significant financial loss” for Baoshan steel in the current quarter, an industry publication said. Baoshan steel had warned of a fourth quarter loss when it reported third-quarter results.

Domestic steel prices have fallen more than 40 percent from their peak in early June. The entire steel industry in China, which is the top producer and user, started to incur losses from October, the country’s steel industry association has said.

“So over the next two years, the profitability in the domestic steel industry is expected to hover near the bottom,” Yang Baofeng, an analyst at Orient Securities said.

(Shanghai Daily November 28, 2008)

China Steel Corp, Taiwan’s largest maker of the metal, is to cut prices by an average 23 percent for domestic customers, its first cut in almost three years, after a reduction in demand.

Prices of hot-rolled coil, a benchmark product, will drop by an average NT$7,840 (US$236) a metric ton, the company said yesterday. The reduction will last between January and March, according to spokesman Chung Le-min.

China Steel joins Baoshan Iron & Steel Co in reducing prices as the economic slowdown hurts demand from car makers and builders, Bloomberg News said.

“Demand for steel will probably continue to fall since Taiwan’s economy is in a recession and the property market is cooling,” said Eric Yao of Truswell Securities Investment Trust Co in Taipei.

China Steel, based in Kaohsiung, said yesterday that it planned to cut output by 10 percent next year.

The mill last cut prices in the second quarter of 2006.

The company will lower prices of steel plates by an average NT$4,550 a ton, bar and wire rods by NT$7,000 and cold-rolled steel by NT$7,510, according to its statement. It is also dropping the price of electro-galvanized sheets by NT$8,000 a ton, of electrical sheets by NT$8,000, and of hot-dipped zinc-galvanized sheets by NT$7,680.

Hot-rolled steel is used to make cold-rolled steel, which is used with zinc-galvanized sheets in car bodies and appliances.

China Steel fell 2.5 percent to close at NT$21.50 in Taipei trading before the announcement.

The stock has fallen 49 percent this year, compared with the 50 percent drop in the benchmark Taiex index.

Baoshan Iron & Steel, China’s biggest steel maker, has reduced prices for three straight months.

The company lowered cold-rolled product prices for December by 22 percent, the biggest cut this year.

(Shanghai Daily November 27, 2008)

BHP Billiton Ltd abandoned a bid for rival Rio Tinto Group, a move which was anticipated and would benefit Chinese steel makers, domestic industry sources said.

“BHP’s decision just underscores the current global market turmoil,” said Lu Youqing, vice president at Chinalco, which together with Alcoa of the United States bought 9 percent in Rio in February.

Chinalco, a state-owned diversified metals company and parent of top Chinese aluminum maker Chalco, is now Rio’s largest shareholder. Its stake purchase in Rio has been widely considered a move to derail BHP’s hostile bid for Rio.

“It will be good for China’s steel industry,” Lu said yesterday of BHP’s withdrawal, adding Chinalco hasn’t studied a plan to change its stake in Rio so far.

As BHP withdrew its bid, the pressure on Chinese mills in the new round of iron ore term price talks will be greatly eased, said Sun Yong, an analyst at China Galaxy Securities.

Prices should drop next year as demand falls amid a global slowdown, analysts have said. “Contract prices may fall by as much as 40 percent next year,” Sun said.

(Shanghai Daily November 25, 2008)

Baoshan Iron and Steel Co Ltd (Baosteel), the country’s largest steelmaker, has cut sale prices of its main products for December by as much as 1,000 yuan, making it the fourth such reduction this year.

In a notice to customers, the listed unit of the country’s largest steelmaker said it is reducing prices on five categories of steel products. Cold-rolled steel prices have been reduced by 970 yuan per ton while hot dip galvanized steel and acid pickling steel prices have been cut by 1,000 yuan per ton.

“By lowering product prices, Baosteel is able to utilize its enormous stockpile of iron ore and also maintain a resilient cash flow,” said Wang Jianhua, director with Mysteel.com, a steel information and data provider.

Analysts said Baosteel’s prices have been always above market average and the cut will help them return to reasonable levels.

According to Jiang Qiu, an analyst with Guotai Jun’an Securities, Baosteel’s prices were about 1,000 yuan above market average prior to the present cut. The analyst, however, said the price cut would not trigger a domino effect across the whole steel industry.

Baosteel had earlier said it expects losses from its carbon and stainless steel product sales in the fourth quarter due to weakening demand.

(China Daily November 25, 2008)

China’s expanding construction industry will fuel an increase in demand for copper and drive prices higher, according to Aluminum Corp of China (Chinalco) Chief Executive Officer Xiao Yaqing.

The plunge in copper from a record earlier this year is a “short-term” decline, Xiao said at a meeting of the Asia-Pacific Economic Cooperation in Lima, Peru yesterday.

“The financial crisis has spilled over into the economy and economies are heading for recession,” Xiao said. “In China, we’re still building and need commodities. There will be demand to support copper prices.”

Prices have fallen 63 percent in New York since peaking in May, as slumping equity markets sparked concern the global recession would curb demand for metals, Bloomberg News said.

The Beijing-based company’s investments are long-term and don’t depend on prices, Xiao said.

Chinalco is working on an environmental impact study for its US$2.2-billion Toromocho copper-silver project in Peru, Xiao said. The company aims to refine as many minerals as possible from ore at the central Andes deposit.

Chinalco has arranged a US$2-billion loan with China’s Eximbank to develop the mine, which is due to produce 210,000 metric tons of copper a year by 2012.

(Shanghai Daily November 24, 2008)

Lingyuan Iron and Steel Co, a Chinese steel maker, plans to sell shares to its parent and institutional investors to raise funds to buy a 2 billion yuan (US$293 million) iron ore mine from its parent.

The China Securities Regulatory Commission approved the sale of 128 million yuan-denominated shares to parent Lingyuan Iron & Steel Group at 9.45 yuan apiece, the Liaoning Province-based company said yesterday in a statement. Additional shares will be sold to institutions at no less than 8.51 yuan, 67 percent more than Monday’s closing price, it said.

(Shanghai Daily November 19, 2008)

China’s chances of gaining greater influence at the upcoming iron ore price negotiations are slim, despite the increased demand expected to result from the nation’s 4-trillion yuan economic stimulus package, experts said.

Rio Tinto, the world’s second-largest iron ore producer, said on Oct 10 it would cut its output by 10 percent due to shrinking demand from China, the world’s largest iron ore consumer.

Zhou Xizeng, an analyst with Citic Securities, said: “There are more than 700 million tons of iron ore stranded at ports nationwide, but monthly consumption is only 200 million tons.”.

According to Lange Steel Information Research Center, the domestic iron ore price dropped to 740 yuan per ton last weekend, down 54.6 percent from its peak on June 11. The international market saw a 63.8 percent drop from its peak of 1,520 yuan in July, the largest drop in three years.

Zhou said the price negotiations would be tense as “the two sides will disagree on future expectations, since neither side can predict next year’s situation”. The price will be largely decided by both sides’ estimates of future demand, he added.

Analysts believe the iron ore price will likely fall in 2009, depending on how much pressure Chinese negotiators can put on their rivals. But given the fact that the top three iron ore suppliers, BHP Billiton, Rio Tinto and Vale, control 70 percent of the market, it will be difficult to squeeze down the futures price by a large margin, according to Liu.

Imports already account for 50-60 percent of China’s iron ore demand, partly due to a combination of low domestic supply and poor quality.

Besides, China’srepresentative at the annual iron ore price negotiation, Baosteel, the nation’s largest steelmaker, accounts for less than 5 percent of China’s total steel output.

The three iron ore giants control 70 percent of the global iron ore market, “leaving Chinese steel mills little room for maneuver in negotiations,” said Liu Baoyang, analyst with GF Securities.

In June and July, Baosteel agreed a price hike of 96.5 percent for supplies with Rio Tinto and BHP Billiton, while an earlier deal with Vale saw a 71 percent price hike.

(China Daily November 19, 2008)

The 4-trillion-yuan economic stimulus plan and the abolition of some steel tariffs may not be enough to spur China’s steel and construction materials industry, analysts said.

The Chinese government announced the stimulus package on Sunday to boost domestic demand, while the State Council yesterday announced it would cut tariffs and raise tax rebates on 3,770 export items, including some steel products.

Such measures, analysts feel, could provide immediate cheer to steelmakers, but in the long term they still have to grapple with an industry-wide downturn.

“The abolition of some steel tariffs from Dec 1 will definitely boost exports in the short term, but it’s not enough to retract the downturn in international demand,” said Zhao Zhicheng, an analyst with Essence Securities.

“We believe international steel prices will rapidly answer China’s tariff cuts, and counter the export incentives of the central government. The policy will also inspire more steel trade disputes between China and other regions,” said Zhao.

In October, exports of steel-products by China, the world’s biggest producer, fell 31 percent, or 2.05 million tons, from a month earlier.

“The stimulus package will help increase domestic steel demand in the next two years,” said Sun Yong, an analyst with China Galaxy Securities.

The financial turmoil has plunged China’s once profitable steel industry into the red with many small steelmakers facing closure as supplies far exceed the demand.

“A major and clear part of the plan is the 2-trillion-yuan investment in railway construction over the next two years, indicating the need for around 50 million tons of steel.

In addition, low-income housing, rebuilding in disaster-hit areas and other construction projects will increase annual demand by 50 million tons,” said Sun.

However, it still cannot fill the gap of over 100 million tons of steel between the yield of around 500 million tons and requirement of about 400 million tons.

“The way to save the steel industry is to restructure it through mergers and do away with small mills with low profitability and output,” said Sun.

Luo Bingsheng, vice-chairman of China Iron and Steel Association, also said that the downturn is the best opportunity to restructure and revive the whole industry.

Analysts, however, said the stimulus plan is good news for the domestic cement market, which has been on a downhill path this year largely due to the stagnant real estate industry.

“We estimate cement demand to increase by approximately 100 million tons per year following the stimulus plan, largely offsetting the impact from the real estate slump,” said Shi Lei, an analyst with Essence Securities.

“The Ministry of Railways plans to invest 600 billion yuan next year, double that of this year. Demand for cement from railway construction next year will add another 80 million tons,” said Xie Yongyuan, an analyst with GF Securities based in Guangzhou.

“All of this will see the total demand for cement going up to 150 million tons,” he said.

(China Daily November 14, 2008)

Refined silver output in China, the world’s third-biggest producer, has peaked and may stop growing as producers halt expansion because of higher costs, lower prices and reduced incentives, according to an industry official.

Rising costs of labor and higher taxes on exports had reduced producers’ margins, Zhou Juqiu, chairman of the gold and silver division at the China Non-ferrous Metals Industry Association, said. Output may rise to nearly 10,000 tons this year from 9,092 tons last year, he said in an interview with Bloomberg News last Friday.

Spot silver prices have more than halved from a record in March after hedge funds and speculative investors sold commodities to raise cash while recession fears have reduced demand for industrial use of the precious metal.

China’s annual silver output growth had already slowed to 10 percent last year compared with an average 30 percent between 2001 and 2006, Zhou said.

Export rebates

“There won’t be much growth going forward,” he added. While producers are still “doing OK,” they are faced with an increasingly difficult environment, including tighter financing and reduced export market, he said.

In July, China revoked export rebates on silver to control use of limited natural resources. The association is lobbying the government to return the incentive to help struggling producers, Zhou said.

The country will increasingly rely on imports to fill the needs for silver, he said. Last year, the country’s net imports were 1,067 tons, compared with net exports of 1,085 tons in 2006, according to customs data provided by Zhou.

“China has the world’s biggest potential for silver consumption,” said Li Xiaoni, vice president of China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters. The country’s consumption already accounts for 70 percent of the global total for industrial use, she said.

Chinese Vice Premier Li Keqiang has urged members of the international mining industry to strengthen cooperation to cope with the challenges triggered by the international financial crisis.

Li said in a letter to the China Mining Expo in Beijing that the sustainable prosperity of the international mining industry could strongly support world economic and social development.

The Chinese government was taking a series of measures to boost domestic demand and promote economic growth, Li said. The continued stable growth of China’s economy was a major contribution to the world, and would benefit the development of international mining industry.

As an important player in the production and consumption of mineral resources, China would push forward technical innovation, and optimize the exploitation and utilization of resources, Li said.

China would continue opening up its mining industry, and create favorable conditions for dialogue and negotiation between producers and consumers, Li said.

More than 3,200 officials, experts and entrepreneurs attended the three-day China Mining Expo, which opened on Tuesday.

(Xinhua News Agency November 14, 2008)