Wednesday, February 10, 2010

China to Curb "Maverick" Steelmaking as Costs Rise

Ironic timing for this story, as the world's largest steelmaker - ArcelorMittal (MT) is getting squashed to the tune of -8% following its earnings.

Back in August we had noted China was studying overcapacity in certain industries - steel included.[Aug 26, 2009: China Studies Curbs in Steel, Cement]  After that 'study', it was noted in October that China was closer to making concrete moves [Oct 14, 2009: China to Curb Steel Output to Curb Overcapacity]

China, the world’s largest steel producer, faces “severe oversupply” and the government is likely to decide on capacity curbs by the end of the year.  The government is working on plans to close obsolete mills, advance mergers and reduce the number of iron ore importers.

Steel prices in China have dropped 23 percent since reaching a 10-month high on Aug. 4, as overproduction offset rising demand created by government stimulus spending. Some steelmakers have incurred losses at current prices, Deng said.

To get a picture of just how important (broken record) China is in terms of steel production, here is the amazing statistic we pulled from the August story:

Once more, it's China commodity world - we just live in it.

So it appears rather than the generalaties we saw in October, China now has specific steps... "rogue" steelmakers must go!  So we have copper imports, which it appears will now drop back to 2008 levels (i.e. 50% below 2009 levels) and now a crusade againt the rogue steelmakers of China - which in theory should hurt iron ore producers and metallurgical coal.  Of course, any day the US dollar is weak, HAL9000 and his merry crew of alogrithms will jump right back into steel, copper, iron ore, and met coal - because that's all they know to do.  But from a fundamental point of view, with China being such a dominant steel maker - we have another warning shot to the "I must buy commodities per the global recovery" textbook.

China produced 500.5 million tons of steel last year as the world’s largest producer. That’s more than the combined output of Japan, the U.S., Russia and India, the next four biggest makers, according to the World Steel Association. 
In the first seven months, China accounted for almost half of global output.

Via AP:
  • China, the world's biggest steel producer, says it will crack down on unauthorized steel mills as it maneuvers to wield more control over prices during crucial iron ore talks.   Only about 300 million tons of the 567.8 million tons of crude steel produced last year in China was made with full government authorization, according to Miao Yu, a vice minister of the Ministry of Industry and Information Technology.
  • China plans step up efforts to shut down small mills or merge them with big steelmakers, cutting output to about 500 million tons by 2011, Miao said in remarks posted on the government-affiliated China Iron and Steel Association's Web site.
  • One key goal of the restructuring is to increase Beijing's influence over prices set for imported iron ore in ongoing negotiations with foreign suppliers, led by Shanghai-based Baosteel Group Corp. Ore is they key material in steel making.  In the last round of talks, China sought but failed to present a unified front against the three biggest ore producers -- Anglo-Australian miners Rio Tinto Ltd. and BHP Billiton Ltd. and Brazil's Vale SA. Instead, its bargaining position was undercut as smaller steel mills negotiated their own deals with miners, buying heavily on the spot market. [Sep 25, 2009: Chinese Blink on 2009 Iron Ore Pricing]
  • China's five biggest steelmakers still account for just under a third of total output, well below the government's target of 45 percent, according to CISA.
  • The benchmark iron ore price paid by Asian steel mills is expected to rise by 40 percent or more this year, buoyed by strong demand from massive stimulus spending on construction projects, and recoveries in other economies.  CISA's vice chairman, Luo Bingsheng, has said China expects miners to seek a more favorable "unified price" involving a 20 percent to 30 percent increase".

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012