chinese steel industry

7/30/2019 Chinese Steel Industry

1/44

Colin Liang

E-mail: [email protected]

Tel: +86-21-5155-0040Mobile: +86-13818344493

CBI Research & Consulting

Thoughts on the Chinese Steel Industry


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Slide 1

Outline

Who We Are and What We Do

Hot Topics in the Current Market

The Features of Chinese Steel Market - An Overview


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Slide 2

Who We Are

CBI China is the largest Chinese commodity research and consulting firm. We

specialize in the industry chains of: petrochemical, steel, oil & gas, non-ferrous metal,pulp & paper; providing our clients with real-time market intelligence and in-depth

industry value-chain analysis.

We aim to offer value driven consulting services and support our clients in making

strategic decisions on market entry, seeking business development opportunities

and market penetration here in China. Bringing together over 350 local

professionals, we have served over 73,000 multi-national and local clients withcustomized consulting and proven solutions since 1999.

Research &ConsultingServices

Information Services


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Slide 3

What We Do

Maintain a database containing 100,000+ companies, which iscontinually being updated.

Call directly to industry players to collect first-hand information and

monitor major industries throughout China.

Deliver more than 8,000 phone calls, 30,000 emails and 50,000 short

messages everyday to serve our 11,000 customers all over the world.

More than 350 full-time professionals are working in CBI, 20% with

Masters degrees and the rest with a minimum Bachelor degree. More

than 100 employees are bilingual.

We completed more than 100 projects and assignments for MNCs lastyear.


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Slide 4

Our Services and Products

Periodical Reports

China Steel Briefing

China Metal Briefing

Industrial Researches

China Steel Capacity Forecast 2007-2010

China Steel Demand Outlook 2007-2010

China Steel Production Cost Analysis

Customized Reports and Consulting Services

Conference Call and Customized China Tour


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Slide 5

Outline





7/44Slide 6


1. The Importance of the Chinese Steel Industry

3. Product Mix and Geographic Distribution of Steel Mills

2. Players and Their Relationship

4. Supply and Demand Dynamics

5. Export Evolution


8/44Slide 7

Data Source: International Iron and Steel Institute

1. The Importance of the Chinese Steel IndustryChina is The Major Driver of World Steel Production

17.7%

26.2%

15.0%

20.2%22.9%

31.0%33.8%

0

200

400

600

800

1,000

1,200

1,400

2000 2001 2002 2003 2004 2005 2006

Unit: Million tonnes

0%

5%

10%

15%

20%

25%

30%

35%

40%

China ROW China % of the World

Steel Production of China and the

World, 2000 - 2006

-2.9%

3.2% 3.6% 5.5%

-0.3%

4.4%

15.9%

21.9% 21.2%23.8%

29.2%

19.7%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

2001 2002 2003 2004 2005 2006

ROW China

Steel Production Growth Rate in China

and Rest of the World, 2001 - 2006


9/44Slide 8


Players in the Value Chain

CentralGovernment

LocalGovernment

Steel Mills TradersEnd

Users

CISA


10/44Slide 9

Goal: Smooth Growth with strategic long term planning

Lack of experience for the transition from Planning Economy to Market

Economy

Steep or flat learning curve?

Protect the interest of bigger Stated Owned Enterprises

Keep the steel price reasonable to downstream industries

Pollution control

Energy conservation

Industry consolidation


Central Government


11/44Slide 10

Social stability

GDP growth

Tax revenue

Employment

Other related industries

Different interest from central government


Local Government


12/44Slide 11

State owned enterprises:

The bigger, the better

Economy of scale

More clout to raw material suppliers, government, and competitors

Ownership

Top leaders are nominated by the government

Whom they are responsible to? Government, shareholders, employees, or clients?

Agency problem

Mentality of leaders: Top line vs Bottom line, Market Share vs Profit margin Whats their top priorities within their tenure? Capacity, production, profit, or

market share?

Game theory

What if I cut the capacity and production?

Sales & marketing strategies and channel management need to improve

Private mills:

Low-value added product Hit and run, small in scale

Not responsible to the government, CISA, National Bureau of Statistics, and publicshareholder

Strive to survive, maximize the profit

More self-disciplined in terms of capacity and production


Steel Mills


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Slide 12

Traders behavior adds more short term volatility to spot market price

Most small-medium size and private

Low entry barrier for speculative traders: financing, relationship with steel mills, few industry

knowledge, and guts

Little bargaining power to steel mills due to fragmentation

Provide financing and distribution services to steel mills and end users

Highly leverage on bank loan

First tier traders are highly speculative with small percentage of direct sales

Future trend

Economy of scale with consolidation

Distributors rather than speculators: service center

Compete on sound financing, distribution network, and JIT services


Traders or Distributors


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Slide 13

Large end users:

Direct orders from steel mills

JIT inventory control

Long-term contract with price lock-up

Middle size end users:

Order from traders Keep certain level of inventory

Purchase at spot market price

Get financing from traders with credit ranging from 15 to 30 days

Small size end users:

Orders from traders Few inventory

Purchase at spot market price

Get financing from traders with credit ranging from 15 to 30 days


End Users Purchasing Pattern


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Slide 14

3. Product MixFlat Production Is Catching Up Quickly

Data Source: NBS; CBI Research & Consulting.

Long

Products

61%

Flat

Products

26%

Others

13%

Long

Products

47.4%

Others

21%

Flat

Products31.6%

2001 Finished Steel ProductionTotal= 160.7 Million tonnes

2006 Finished Steel ProductionTotal= 469.5 Million tonnes


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Slide 15

3. Geographic Distribution of Steel MillsProximity to Resources, Ports and Markets

Steel Mills

Iron Ore

Coal

Data Source: CBI Research & Consulting, Google Earth


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Slide 16Data Source: NBS, CBI Research & Consulting.

4. Supply and Demand DynamicsProduction and Demand of Crude Steel

0

50

100

150

200

250300

350

400

450

2000 2001 2002 2003 2004 2005 2006

Unit:Million tonnes

0%

5%

10%

15%

20%

25%

30%

Production Demand Production GR Demand GR

Production and Demand of Crude Steel, 2000-2006


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Slide 17Data Source: NBS, CBI Research & Consulting.

4. Supply and Demand DynamicsGrowth Rates of Long Products and Flat Products

15.1%

19.2%

22.5%

13.5% 13.3%

13.8%

19.6%23.3%

19.7%18.1%

19.3%

23.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006Production Demand

Production and Demand Growth Rate of Steel Products, 2001- 2006

Long Products Flat Products

30.5%

35.1%

38.2%

9.6%

20.4%19.3%

11.7%

34.9%

21.0%

26.5%

23.9%

10.8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006Production Demand


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Slide 18Data Source: CBI Research & Consulting.

4. Supply and Demand DynamicsRegional Supply and Demand in China, 2005

North-West

+1

21 20

North+42

113

71

East -29

127156

HAINAN

HEILONGJIANG

JILIN

LIAONING

HEBEI

SHANDONG

FUJIANJIANGXI

ANHUI

HEBEI

HUNAN

GUANGDONG

GUANGXI

SHANGHAI

HENAN

SHANXI

INNER MONGOLIA

SHAANXI

NINGXIA

GANSU

QINGHAI

SICHUAN

YUNNAN

TIBET

XINJIANG

JIANGSU

ZHEJIANG

BEIJING

TAIW

AN

GUIZHOUSouth-West18

1432

North-East

+8

39 31

Production

Demand

Middle and South

-958 67

Million tonnes


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Slide 19Data Source: China Customs, CBI Research & Consulting

5.Export EvolutionChina Exports & Imports by Destinations

China's Finished Steel Exports by

Destinations, 2004 - 2006

11.6%

12.3%

19.3% 20.4%

15.1%

9.1% 6.6%

17.4%

33.9% 34.5% 33.6%

24% 26.9% 21.6%

13.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006

Others

EU

ASEAN

USA

Korea

14.2 20.5 43Total

Million tonnes

China's Finished Steel Imports by Origins,

2004 - 2006

17.2%

19.8%16.7% 18.9%

22.2%

8.0% 9.9%

3.0%31.9% 29.9%

17.1%

26.6% 24.2%

37.9%

16.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006

Others

Russia

Taiwan

Korea

Japan

29.3 25.8 18.5Total

Million tonnes


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Slide 20

5.Export EvolutionChanges in NetExports

Data Source: China Customs, CBI Research & Consulting

1.0 1.63.71.6

2.5

4.9

-1.9 -2.9

-8.8

-3.4-1.9

5.1

-5.2-6.8

-9.5

-6.2-6.8

-2.5

-0.7

-2.7

-1.6

0.4

3.3

-1.2

-1.9

-3.0

-2.1

-1.7

0.9

0.5

0.2 0.5

0.3

-0.2

0.4

0.0

-30

-25

-20

-15

-10

-5

0

5

10

15

20

2001 2002 2003 2004 2005 2006

Unit:Million tonnes

GIGIGIM-H PlateM-H PlateM-H Plate

CRCRCR

HRHRHR

Wire RodWire RodWire Rod

DeBarDeBarDeBar


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Slide 21

Outline





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Slide 22

Hot Topics

1. When will the current oversupply end?

2. How strong will demand be in the future?

3. Will Chinese net exports continue to soar?

4. Potential impact of anti-dumping

5. Consolidation is on the way!


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1.When Will The Current Oversupply End?Crude Steel Capacity

535

601642 667

67218.9%

0.7%

3.9%

6.9%

12.3%

0

100

200

300

400

500

600

700

800

2006 2007E 2008E 2009E 2010E

Unit:Million tonnes

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Capacity Y-o-Y Growth Rate

Crude Steel Capacity, 2006 - 2010


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1.When Will The Current Oversupply End?Crude Steel Capacity by Products

364.8360.1

311.4

283.7

236.9

1.3%

15.7%

9.7%

19.8%

29.8%

0

50

100

150

200

250

300

350

400

2006 2007E 2008E 2009E 2010E

Million tonnes

0%

5%

10%

15%

20%

25%

30%

35%

40%

GI

Plate

CR

HR

Y-o-Y

GrowthRate

247.6245239.1230.9221.6

10.8%

1%

2.5%3.5%4.2%

0

50

100

150

200

250

300

350

400

2006 2007E 2008E 2009E 2010E

Million tonnes

0%

5%

10%

15%

20%

25%

30%

35%

40%

Wire Rod

DeBar

Y-o-YGrowthRate


2 H St Will D d B i Th F t ?


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2.How Strong Will Demand Be in The Future?

Steel Demand

375.4

448.7

520.6485

415.5

12.1%

7.3%

8.1%

8%

10.7%

0

100

200

300

400

500

600

2006 2007E 2008E 2009E 2010E

Unit:Million tonnes

0%

2%

4%

6%

8%

10%

12%

14%

Demand Y-o-Y Growth Rate

Steel Demand, 2006 - 2010

1 H St Will D d B i Th F t ?


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Slide 26

1.How Strong Will Demand Be in The Future?Main Steel Demand by Industries

Data Source: NBS; CBI Research & Consulting.

2010

Total=520.6

million tonnes

Hardware

3.6%

Pipes

1.4%

Shipbuilding

2.5%Container

1.0%

Home

Appliance

1.3%

Railway

1.3%

Automobile

6.2%

Machinery

15.8%Construction

48.5%

Others

18.5%

2006

Total=375.38

million tonnes

Others

21%

Hardware

4.1%

Pipes

1.6%

Shipbuilding

1.8% Container

1.1%

Home

Appliance

1.4%

Railway

1.0%

Automobile

4.3%

Machinery

13.4%

Construction

50.3%

3 Will Chi N t E t C ti t S ?


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Slide 27

3.Will Chinese Net Exports Continue to Soar?Steel Net Export Would Peak in 2009


18.5

43

52.5

59.9

52.4

33.5

16 131314

2006 2007E 2008E 2009E 2010E


Finished Export Finished Import

Finished Steel Import andExport, 2006 -2010

39.436.5

23.8

45.949%

-48%

-14.1%

25.8%

0

10

20

30

40

50

2007E 2008E 2009E 2010E

Unit:Million tonnes

-60%

-40%

-20%

0%

20%

40%

60%

Finished Net Export Y-o-Y Growth Rate

Finished Steel Net Export,2006 -2010

3 Will Chi N t E t C ti t S ?


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Slide 28

3.Will Chinese Net Exports Continue to Soar?Steel Export by Products


180.2

209.7

228

226

206.6

17.6%

8.5%

-15.1%

-32.9%

0

5

10

15

20

25

30

2006 2007E 2008E 2009E 2010E

1000 tonnes

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

GI

Plate

CR

HR

Y-o-Y

GrowthRate

9.36

11.0111.9610.87

9.29

-24.1%

-10.0%

10.0%

17.0%

0

5

10

15

20

25

30

2006 2007E 2008E 2009E 2010E

million tonnes

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Wire Rod

DeBar

Y-o-YGrowthRate


4 A ti d i


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Slide 29Data Source: China Customs; CBI Research & Consulting.

4. Anti-dumping

China Doubled Its Share in Global Steel Trade in 2006

China

8%

China

15%

2005 2006

What impacts will anti-dumping activities have on Chinas steel export?

China Doubled Its Share in Global Steel Trade

4 Anti dumping


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Slide 30Data Source: China Customs; CBI Research & Consulting.

4. Anti-dumping

What Impacts Will Anti-dumping Activities Have on Chinas Steel Export

Oct

GI

Debar

WireRod

Pipe

Jan Feb Mar Apr May Jun Jul Aug Sep

-

USA

Mexico

Jan Feb Mar Apr May Jun Aug Sep

-

Thailand

Nov DEC Jan Feb

2006 2007

CR

CanadaUSA

USA

Mexico

Mexico

MexicoUSA

HR &M-H Plate

Indonesia Vietnam

Indonesia

India Australia

Countries Raised Anti-dumping Investigations onChinas Steel Export, Jan 2006 - Feb 2007

China Steel Export Quantities Under Anti-dumpingInvestigations, Jan 2006 - Jan 2007

0.7

1.4

0.1

0.8

0.3

0.1

3.8

0.1

4.0

5.8

4.3

3.1

14.8

6.4

CR

HR & M-H Plate

GI

Debar

Wire Rod

Pipe

Million tonnes

Export Quantities UnderAnti-dumping Investigation

Export Quantities UnderEU Anti-dumping Argument

Total China's Export Quantities

4 Anti dumping


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Slide 31

1. Chinese government have minimized Export VAT Refund and imposed

export taxes for semis

2. Flat product export will bear the brunt because of a larger share under

investigation.

3. Export to SE Asia could stop increasing due to more anti-dumping

investigations. E.U. and the Middle East are still promising for Chinas future

steel export.

4. Anti-dumping

What Impacts Will Anti-dumping Activities Have on Chinas Steel Export


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Slide 32

China's Export to ASEAN Going Flat

5.1

7.6

10.6

0

2

4

6

8

10

12

2004 2005 2006 2007E


Source: China Customs, CBI Research & Consulting

China's Semi & Finished Export to ASEAN, 2004 - 2006


34/44

Slide 33

China's Semi Export Can Hardly Feed ASEAN Shortage

4.2

3.6

2.6

5

9

7.1

6.1

?2007E

2006

2005

2004

Unit: Million tonnes China TotalSemi Export

China's Semi

Export toASEAN


China's Total Semi Export & Export to ASEAN, 2004 - 2006


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Slide 34

China's Export to ASEAN by Products

Semi40%

Section

6%Wire Rod

2%

DeBar

12% Bars

5%

Sheets&

Coils

28%

Pipes

7%

43.5%

84.5%

72%

87%

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Long Flat

Chinas Export to ASEAN

Chinas Total Export


Chinas Export to ASEAN by Products, 2006 20042006 CAGR Rate for Chinas TotalExport and Export to ASEAN by Category


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Slide 35

China's Export to ASEAN Going Flat

5.1

7.6

10.6

0

2

4

6

8

10

12

2004 2005 2006 2007E



China's Semi & Finished Export to ASEAN, 2004 - 2006


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Slide 36

China's Semi Export Can Hardly Feed ASEAN Shortage

4.2

3.6

2.6

5

9

7.1

6.1

?2007E

2006

2005

2004

Unit: Million tonnes China TotalSemi Export

China's Semi

Export toASEAN


China's Total Semi Export & Export to ASEAN, 2004 - 2006


38/44

Slide 37

China's Export to ASEAN by Products

Semi

40%

Section

6%Wire Rod

2%

DeBar

12% Bars

5%

Sheets&

Coils

28%

Pipes

7%

43.5%

84.5%

72%

87%

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Long Flat

Chinas Export to ASEAN

Chinas Total Export


Chinas Export to ASEAN by Products, 2006 20042006 CAGR Rate for Chinas TotalExport and Export to ASEAN by Category

4 A ti d i


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Slide 38

4. Anti-dumpingVAT Refund Adjustment Chart Update

8%

11%

13%

15%

Jan, 20042000 Apr, 2005Sep,

2006

Finished Steel & Slab/billet

Slab & Billet

0%

Nov,

2006

Slab & Billet

Export VAT Refund and Export Tax Rate Evolutions, 2000- Apr 2007Export VAT Refund

and Export Tax Rate

-10%

Finished Steel &

Slab/billet

Finished

Steel

Apr,

2007

Pipes

Most of Flat Products

Part of Long Products

Most of Long Products

Part of Flat ProductsMostly

CR & GI

Most Finished

Steel Products

5%

Slab & Billet

Data Source: CBI Research & Consulting, NDRC

5 Consolidation


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Slide 39Data Source: NBS

5.Consolidation

Decreasing Concentration Ratio in the Past 6 Years

0

50

100

150

200

250

300

350

400

450

500

2001 2002 2003 2004 2005 2006

Unit:Million tonnes

25%

30%

35%

40%

45%

50%

Top 10 mill's Production Rest of Mills Production Top 10 Concentration Rate

Will capacity elimination really happen in China?

How much capacity will be eliminated?

Where will M & As go ?

A Deterioration in Chinas Top 10 Concentration Ratio, 2001-2006

5 Consolidation


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Slide 40

Elimination of Inefficient

Capacity

Pollution ControlCriteria on Size of

Equipment

Criteria on Energy

Consumption

Elimination of Inefficient

Equipment

Discriminatory Power

Pricing

Highly Polluting

Project Elimination

Policies :

Strong Normal WeakCurrent Impact

Progress Satisfactory Satisfactory Difficult

5.Consolidation

Will Capacity Elimination Really Happen in China?

5 Consolidation


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Slide 41

NDRC s Target: 100 million tons of iron-making and 55 million tons ofsteel-making capacity are requested to be eliminated by 2010, the 11th

Five-year Plan

Key Areas of Capacity Elimination: North China & East China

Conclusion:

Small but solid progress has been seen in key areas since end 2006.

Further strengthening measures are needed to approach the target.

5.Consolidation

How Much Capacity Will Be Eliminated by 2010?

Data Source: CBI Research & Consulting.

5 Consolidation


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Slide 42

Intra-Province Cross-Province

SOE with SOETanggang Group*

Magang with Hefei*

Baosteel with Bayi*

Baosteel with Jinan

SOE withPrivate

Tonghua I/S with Jilin Jianlong*

Hangzhou I/S with Ningbo Jianlong*

Private with

Private

Shagang with Huaigang*

Tangshan Guofeng with Yinfeng&Qunli*

Overseas MillsInvolved

Mittal with Valin*

Arcelor with Laiwu

Notes: 1. * refers to successful ones

2. Cases in red are self-initiated

3. SOE for state owned enterprises

Conclusions:1. More successful intra-province cases than cross-province ones

2. Private mills are taking more active roles in M&As

3. More waiting time for overseas acquirers

4. Catalysts: Market forces rather than government force

5.Consolidation

Where Will M & As Go ?


44/44

Thank You!

Colin Liang

E-mail: [email protected]

Tel: +86-21-5155-0040Mobile: +86-13818344493

CBI Research & Consulting

chinese steel industry

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