China iron and steel industry: Development prospects for 2013
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China iron and steel industry: Development prospects for 2013

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Helen Liu, Senior Analyst, from Umetal Research Center delivered this presentation at the 2012 Americas Iron Ore conference. Americas Iron Ore is one of the most respected annual gatherings for North ...

Helen Liu, Senior Analyst, from Umetal Research Center delivered this presentation at the 2012 Americas Iron Ore conference. Americas Iron Ore is one of the most respected annual gatherings for North and South American iron ore markets and its agenda features: iron ore industry and market developments; new project developments and expansions in North and South America; overview of steel demand; iron ore spot market price; infrastructure and transport challenges and investment opportunities. For more information on the annual event, please visit www.immevents.com

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China iron and steel industry: Development prospects for 2013 China iron and steel industry: Development prospects for 2013 Presentation Transcript

  • 1 Analysis on China Iron and Steel Industry in 2012 & Development Prospects for 2013
  • 2 Characteristics of China Steel Industry in 2012 Steel Demand Slows Down while Steel Output Rises Rapidly Steel Prices Eye Obvious Dip while Steel Production Witnesses Continuous Rise Steelmakers are in Red due to Decreasing Profits
  • 3 China GDP growth demonstrates a 7-quarter continuous decline -20% -10% 0% 10% 20% 30% 40% 50% 2004-Q1 2004-Q4 2005-Q3 2006-Q2 2007-Q1 2007-Q4 2008-Q3 2009-Q2 2010-Q1 2010-Q4 2011-Q3 2012-Q2 0% 2% 4% 6% 8% 10% 12% 14% China Crude Steel Output Growth Rate China GDP Growth Rate China’s GDP Growth Slows Down (I)
  • 4 Fixed asset investment growth rate drops obviously in 2012; investment on real estate demonstrates a big dip. 0% 10% 20% 30% 40% 50% 60% Feb/09 Apr/09 Jun/09 Aug/09 Oct/09 Dec/09 Feb/10 Apr/10 Jun/10 Aug/10 Oct/10 Dec/10 Feb/11 Apr/11 Jun/11 Aug/11 Oct/11 Dec/11 Feb/12 Apr/12 Jun/12 Aug/12 China Fixed Asset Investment Growth China Real Estate Investment Growth China’s GDP Growth Slows Down (I)
  • 5 In 2012, investment on railway and highway drops significantly, dragging down steel demands. China’s Steel Downstream Industries Growth Cools Down (I) -35 -15 5 25 45 65 85 0 200 400 600 800 1000 1200 1400 China Railway & Highway Investments in 2011/2012 Railway Investment (RMB Bln) Highway Investment (RMB Bln) Railway Growth (%) Highway Growth (%)
  • 6 Rapid growth of automobile output slows down. 1000 1200 1400 1600 1800 2000 Jan/10 Apr/10 Jul/10 Oct/10 Jan/11 Apr/11 Jul/11 Oct/11 Jan/12 Apr/12 Jul/12 China Automobile Output China Automobile Sales '000 units 0 10 20 30 40 50 60 0 5 10 15 20 25 2006 2007 2008 2009 2010 2011 2012 Jan/Sep China Automobile Output & Growth in 2011/2012 Production(Mln) YoY(%) China’s Steel Downstream Industries Growth Cools Down (II)
  • 7 Growth rate of household appliance industry experiences significant decrease -40% -20% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% Feb/11 Apr/11 Jun/11 Aug/11 Oct/11 Dec/11 Feb/12 Apr/12 Jun/12 Aug/12 Output Growth of Washing Machine Output Growth of Refrigerator Output Growth of Freezer Output Growth of Air Conditioner China’s Steel Downstream Industries Growth Cools Down (III)
  • 8 Major Household Appliance Products Output Household Appliance Products Jan – Sept 2012 Jan – Sept 2011 Growth Rate Difference Output (‘000 Unit) Growth Rate (%) Output (‘000 Unit) Growth Rate (%) Washing Machine 48792 1.4 4825.7 17.0 -15.6 Refrigerator 64542 -4.6 6826.6 18.2 -22.8 Freezer 14221 1.8 1405.3 10.4 -8.6 Air Conditioner 10719 0.3 11295.6 32.2 -31.9 China’s Steel Downstream Industries Growth Cools Down (III)
  • 9 Three major indicators of shipbuilding industry decreases rapidly from Jan to Sep 2012. -60% -40% -20% 0% 20% 40% 60% Feb/11 May/11 Aug/11 Nov/11 Feb/12 May/12 Aug/12 Growth of Shipbuilding Output Growth of New Shipbuilding Orders Growth of New Orders on Hand China’s Steel Downstream Industries Growth Cools Down (IV) In the first nine months of 2012, China completed a 42.58 million dead weight ton of shipbuilding volume, down by 18.5% YoY. New orders hit 15.41 million dead weight ton, decreasing by 46.9% from one year ago. Up to late September, orders at hand stand at 120.9 million dead weight ton. From January to August, China key shipbuilding companies produced 7.325 million tons of shipbuilding products, down by 33.0% YoY.
  • 10 Growth of Foreign Trade Witnesses Obvious Decline in 2012 (I) In Jan-Sep 2012, mechanical and electrical products export hit US$854.83 billion, up by 8.3% YoY; In Jan-Sep 2011, mechanical and electrical products export hit US$789.33 billion, up by 18.2% YoY. Jan-Sept 2012 Jan-Sept 2011 Growth Rate DifferenceVolume YoY Volume YoY Import & Export 28424.7 6.2% 26771.3 24.6% -18.4% Export 14953.9 7.4% 13920.5 22.7% -15.3% Import 13470.8 4.8% 12850.9 26.7% -21.9%
  • 11 In Jan-Sep 2012, China steel export up 10.2% YoY while import down 12.0% YoY. China Steel Export by Regions in Jan-Sep 2012 7720 2780 2070 1840 1790 -3,2 -35,4 51,5 63,1 29,6 -60 -40 -20 0 20 40 60 80 1000 2000 3000 4000 5000 6000 7000 8000 9000 S.KoreaS.KoreaS.KoreaS.Korea EU27EU27EU27EU27 ThailandThailandThailandThailand SingaporeSingaporeSingaporeSingapore VietnamVietnamVietnamVietnam Export QTY('000t) Growth Rate(%) Growth of Foreign Trade Witnesses Obvious Decline in 2012 (II)
  • 12 Net crude steel export accounts for 5.9% of total crude steel production in the first nine months of 2012 3473 5489 4764 2730 3479 3189 8,3 11,2 9,5 0,5 4,3 5,1 5,9 0 2 4 6 8 10 12 2000 3000 4000 5000 6000 2006 2008 2010 2012 Jan-Sept Net Export Scale for China Crude Steel Net Exp(10Tsd T) Ratio(%) Growth of Foreign Trade Witnesses Obvious Decline in 2012 (III)
  • 13 Steel production capacity keeps increasing in spite of sluggish demand Data issued from CISA indicates that China steel production capacity hit 800 million tons by late 2010 and hit 852 million tons by 2011. It is predicted that China crude steel production capacity will hit 900 million tons in 2012. Crude Steel Output Capacity in 2010 & 2011 ‘000 t 2011 2010 Late 2011 New Added Net Increase Late 2012 New Added Net Increase 850000 80000 50000 800300 72580 53400 China’s Steel Production Capacity Expanding (I)
  • 14 Since early Sept, China steel market took on upward trend after a long time decrease since last Aug. Steel Market Price Chart from Aug 2011 to Sept 2012 Unit Aug 2011 Sept 2012 Change YoY(%) Average Steel Price % 135.49 99.24 -35.99 -26.61 Long Product % 143.86 103.09 -40.77 -28.3 Flat Product % 130.45 95.95 -34.5 -26.4 Rebar in Shanghai RMB/T 4820 3350 -1470 -30.5 Rebar in Beijing RMB/T 5040 3280 -1760 -34.9 HRC in Shanghai RMB/T 4850 3260 -1590 -32.6 HRC in Beijing RMB/T 4820 3200 -1620 -33.6 China’s Steel Production Capacity Expanding (II)
  • 15 Steel Output Adjustment Lags Behind Price Correction China’s Steel Production Capacity Expanding (III)
  • 16 Rebar production maintains at the high level 32 31,1 29,9 27,9 27,8 23,5 18,7 18,5 16,6 15,4 15,6 15,4 18,7 19,0 19,0 18,0 12,9 16,4 15,2 14,3 13,9 13,7 12,9 13,9 0 10 20 30 40 2011.Jan-Sept Jan-Nov 2012.Jan-Feb Jan-Apr Jan-Jun Jan-Aug 2012 Jan-Sept Real Estate Investment and Rebar Output Coefficient (%) Real Estate Growth Rebar Growth (%) China’s Steel Production Capacity Expanding (IV)
  • 17 Steelmakers are in Red From January to August, China steel industry achieved a profit of RMB82 billion, down by 53.4% YoY. Especially for steel melting and processing sector, profit dropped 81.1%. Moreover, key medium and large sized steel mills lost RMB3.18 billion. Reasons for Loss: sluggish demands, rising production, low price and high production costs Root Reasons for Loss: excess production capacity & over competition
  • 18 China Iron Ore Market in 2012 Iron Ore Supply Condition Review on China Iron Ore Market in 2012
  • 19 China Domestic Iron Ore Eyes Obvious Rise 3.6% 16.0% 18.9% 35.6% 38.0% 18.0% 20.7% 8.9% 21.6% 27.2% 0 20000 40000 60000 80000 100000 120000 140000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201110kt output YoY China Iron Ore Supply Condition (I) Domestic Iron Ore -5,00% 0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00% 50 60 70 80 90 100 110 120 130 140 China Domestic Iron Ore Output in 2010-2012 Production (Mln T) YoY Change (%)
  • 20 China Domestic Iron Ore Output by Provinces in 2001-2011 0 10000 20000 30000 40000 50000 60000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 unit: 10kt Hebei Shanxi Inner Mongolia Liaoning Anhui Fujian Shandong Sichuan Yunnan Xinjiang China Iron Ore Supply Condition (I) Domestic Iron Ore
  • 21 Higher Producing Cost Producing cost of China iron ore concentrate is high, average cost was close to US$100/t in 2011. (Fe58% below $100/t; Fe48% above $100/t, even hit $150/t) China Iron Ore Supply Condition (I) Domestic Iron Ore Increasing Production Capacity There are 66 medium and large sized iron ore projects under construction or planned to construct, with reserves over 20 billion tons, and the number is increasing. (12 projects with reserves over 10 million tons each; 16 projects with reserves over 5 million tons each; 18 projects with reserves over 1 million tons each.)
  • 22 -Insufficient domestic iron ore supply for steelmaking; -China iron ore import market pulled by both steelmakers and traders, leading to fluctuation in quantity and price; -Ratio of sintering iron ore using in furnaces reached 70-95% while majority of domestic production were concentrates- fines and lumps were firmly required from overseas; -Grades of domestic iron ore were hardly to be sustained stable by disperse deposits, exiguous mining giants as well as out-of-date mining methods and equipments China iron ore imports jumped 6.4 times in past 10 years. China Iron Ore Supply Condition (II) Imported Iron Ore
  • 23 Iron ore imports up, iron ore prices down… China Iron Ore Supply Condition (II) Imported Iron Ore 80,0 90,0 100,0 110,0 120,0 130,0 140,0 150,0 160,0 170,0 180,0 30 35 40 45 50 55 60 65 70 China Iron Ore Imports & Price in 2010-2012 Import Volume (Mln T) Average Price (US$/T)
  • 24 Iron ore import from India dropped , growth mainly came from Australia, Brazil and S. Africa. Imports form Jan to Sep in 2012 Imports form Jan to Sep in 2011 YoY Change Australia 25723.1 21461.32 19.86 Brazil 11551.43 10471.62 10.31 India 3234.93 6155.65 -47.45 S. Africa 3113.31 2643.01 17.79 Ukraine 1161.38 912.87 27.22 Canada 1100.76 827.01 33.1 China Iron Ore Supply Condition (II) Imported Iron Ore
  • 25 China Imported Iron Ore Grade is declining; China Blast Furnace Charged Iron Ore Grade is declining too. 58.03 57.78 56.98 56.71 2.677 2.53 2.507 2.4 2.5 2.6 2.7 56 57 58 59 2005 2006 2007 2008 2009 2010 2011 Jan-Aug,2012 t/(m3*d)% China Blast Furnace Charged Iron Ore Grade and Utilization Coefficient China Iron Ore Supply Condition (II) Imported Iron Ore
  • 26 China Iron Ore Market Price Enters the Downward Corrections 60 100 140 180 2012-01-04 2012-01-13 2012-01-31 2012-02-09 2012-02-20 2012-02-29 2012-03-09 2012-03-20 2012-03-29 2012-04-12 2012-04-23 2012-05-04 2012-05-15 2012-05-24 2012-06-04 2012-06-13 2012-06-25 2012-07-04 2012-07-13 2012-07-24 2012-08-02 2012-08-13 2012-08-22 2012-08-31 2012-09-11 2012-09-20 2012-10-08 2012-10-17 2012-10-26 $/DMT 62% integrated fines 62% imported fines 58% imported fines 62% imported lumps 65% imported pellets China Iron Ore Spot Price Index (CSI) 2012 Review on China Iron Ore Market in 2012
  • 27 China Iron Ore Market Characteristics in 2012 In H1, average prices for 62%-Fe imported iron ore fines hit US$140.5/ton. Iron ore market witnessed obvious dip in H2 2012 with averaged price at US$114/ton by the end of October. Imported iron ore prices are lower than the production cost of China domestic ore. Under such circumstances, imported iron ore volume saw obvious rise. Steel prices drop significantly, making most steelmakers in red. Steel mills choose to cut production, leading to decreasing iron ore demands and iron ore price. In 2012, China steel mills and iron ore traders largely cut iron ore inventory to reduce risk. Partial coastal steelmakers keep their inventory at 3-5 days. Traders become more cautious of iron ore procurement and choose to increase purchase frequency. Iron ore trading firms’ profits dive rapidly as market price becomes more and more transparent. Facing decreasing iron ore prices, partial iron ore trading companies choose to break contracts. Review on China Iron Ore Market in 2012
  • 28 Custeel firstly launched China iron ore spot price index in 2011 in order to illustrate a reasonable and fair China iron ore spot market. More than 20 Chinese steel enterprises have applied CSI indexes as clearing basis. CSI index has been widely recognized in the market, among which, 62%-Fe imported iron ore index, 62%-Fe domestic iron ore index, 62% imported lump index and 65%-Fe imported pellet index have been applied in business activities. China Iron Ore Spot Price Index (CSI)
  • 29 China Iron Ore Spot Price Index (CSI) Reflecting China Spot Market rapidly——Samples of imported iron ore are selected from 10 main ports in China. Thus, CSI index can reflect demand and supply situation of China spot market rapidly. Comprehensive System——Covering all iron ore products (Fines, Concentrates, Lumps and Pellets) Sampling——Samples are all transaction prices. As the transaction volume of iron ore at Chinese ports is 5,000 tons at least. Thus, samples possess large-scaled transaction. Chinese domestic iron ore included——To study Chinese domestic iron ore prices , help forecasting prices for imported iron ore as Chinese domestic iron ore market exert s influence on world iron ore spot market. Scientific Calculation——The calculation of CSI indexes is based on scientific data model, rather than assessment prices or the last transaction price. Research Team——More than 30 staff are working in CSI index research team.
  • 30 In spite of the same grade, lumps price is higher than the price of fines. On account of the different demand in different period, price gaps between the two products appear to be rather changeable. Accordingly, pricing for lumps is controversial. 50 80 110 140 170 200 2008-01-02 2008-03-12 2008-05-19 2008-07-22 2008-09-24 2008-12-03 2009-02-13 2009-04-20 2009-06-25 2009-08-27 2009-11-06 2010-01-11 2010-03-22 2010-05-26 2010-08-02 2010-10-14 2010-12-16 2011-02-25 2011-05-04 2011-07-07 2011-09-08 2011-11-18 2012-01-31 2012-04-06 2012-06-12 2012-08-15 2012-10-24 $/DMT 62%imported fines 62%imported lumps Price Contrast between Imported Lumps (62%)and Imported Fines (62%) Contrast of CSI 0 5 10 15 20 25 30 35 2008-01-02 2008-03-13 2008-05-21 2008-07-25 2008-10-07 2008-12-10 2009-02-23 2009-04-29 2009-07-07 2009-09-09 2009-11-20 2010-01-26 2010-04-08 2010-06-17 2010-08-20 2010-11-04 2011-01-10 2011-03-22 2011-05-30 2011-08-03 2011-10-14 2011-12-19 2012-03-01 2012-05-11 2012-07-17 2012-09-19 Contrast of CSI
  • 31 From the chart, we can tell that imported iron ore prices are higher than that of domestic iron ore when demands are strong. When demands become sluggish, imported iron ore prices are lower than that of domestic iron ore products. 400 600 800 1000 1200 1400 1600 2005-01-05 2005-05-25 2005-09-28 2006-02-17 2006-06-30 2006-11-10 2007-03-28 2007-08-08 2007-12-19 2008-05-07 2008-09-11 2009-02-03 2009-06-15 2009-10-27 2010-03-10 2010-07-21 2010-12-06 2011-04-21 2011-08-29 2012-01-12 2012-05-31 2012-10-12 RMB/DMT 62%imported fines 62%domestic fines Price Difference between China Domestic Iron ore and Imported Iron Ore -200 -100 0 100 200 300 2005-01-05 2005-04-29 2005-08-23 2005-12-15 2006-04-12 2006-08-04 2006-11-28 2007-03-27 2007-07-19 2007-11-12 2008-03-07 2008-06-30 2008-10-23 2009-02-18 2009-06-11 2009-09-28 2010-01-22 2010-05-20 2010-09-09 2011-01-07 2011-05-06 2011-08-24 2011-12-19 2012-04-18 2012-08-08 Price Difference between China Domestic Iron ore with Fe 62% and Imported Iron Ore Price Index Price Difference Chart between Imported Iron Ore Fine with Fe 62% and Domestic Iron Ore Fine
  • 32 Prospect for Chinese Iron Ore and Steel Industry Prospect for Chinese Iron Ore and Steel Industry
  • 33 I Chinese economy tends to be stable amid the slight slowdown. Growth of GDP is able to exceed the 7.5% of central government’s expectation, being forecast to around 7.7% Since the beginning of this year, Chinese government stuck to the operating mood of making progress while ensuring stability confronted with the rigorous economic situation both at home and abroad. From May on, National Development and Reform Committee (NDCR) has authorized a series of large- scale infrastructure construction projects, especially for furthering the approval system in early September. Meanwhile, People’s Bank of China, the central bank of China, slackened monetary policies with two round of reduction of interest, injecting liquidity, so as to make sure that the approved projects can obtain enough currency. Being stimulated by the short term growth measures and policies, Chinese economic growth rate in Q1, Q2 and Q3 separately stand at 1.5% QoQ, 2.0% QoQ and 2.2% QoQ, continuously increased. Chinese economy may bottom out in Q3 this year, and it is expected to rebound in Q4. Growth rate possibly will remain over 7.5% that government predicted, being estimated to hover at 7.7%.
  • 34 II Forecast on China Steel Industry Major Indicators in 2012 ●Crude Steel production will total 720 million tonnes above, rising by 5.1% from 685 millions of last year, with growth rate slipping by 2.4% YoY. ●Steel product export will reach about 54 million tonnes, up by 10.5% YoY,. Steel product import will amount to 14 million tonnes , dropping by 10.1% YoY. Net export of crude steel totals 42.55 million tonnes. ●Crude apparent consumption will stay 677 million tonnes, up by 4% from that of last year, with growth rate slipping by 2.7% YoY. ●Steel industry profit in 2012 will maintain the large decline compared to that of 2011, keeping the same trend in the first eight months. Large & medium-sized steel companies are hopefully to turn from deficits to profit in Q4 and earn a meager profit ●China iron ore import is expected to reach 737 million tonnes, rising by 7.4% YoY, with the growth rate slipping by 3.5% YoY and addition falling by 16 million tonnes. Reasonable price for imported iron ore fines (Fe: 62%) will fluctuate around US$100-120/tonne in Q4
  • 35 III China Economic Development Will Enter To A New Historical Phase In 2013, National Economy Will See A Steadier Growth Than That Of 2012 China economy has grown rapidly under the policy of reform and opening up. The contradictions in development indicate that it's unsustainable for China economy to maintain high double-digit growth rate by focusing on investment and export consumption. China should transform economic development mode and accomplish the economic growth focusing on consumption and export investment . A reasonable growth rate for China economy should be 7%-8% in the coming years. China economic development target is to reduce consumption of resources, reduce pollution, build a society of resources saving and harmonious relationship between man and the natural environment. China economy will face a transition period from high speed to medium & low speed growth in 2013 . GDP growth will stay around 8% or so. National economy ‘s steel demand will maintain a mild growth.
  • 36 IV China Steel Industry Development Outlook in 2013 ● Forecast on Domestic and Oversea Economic Environment Global economy continues to recover in 2013. Global economy will grow from 3.3% in 2012 to 3.6%; US economy will drop from 2.2% to 2.1%; Euro zone economy will rise from -0.4% to 0.2% Japan economy will fall from 2.2% to 1.2%. China economy will grow from 7.7% to 8.0% above ● The problems which China steel industry has faced in the past years will continue in the coming two years. China steel industry will enter into a phase of de-capacity. Non concentrative market structure and oversupply problem will continue to exist. It’s hard for China steel industry to see obvious improvement in economic benefits. ● China crude steel production will see a small growth of 2-3% in 2013 ● China iron ore imports will go up by 4-5% YoY in 2013. A reasonable price for imported iron ore fines will range bound US$100-130/tonne (Fe: 62%) in 2013.
  • 37 Helen Liu Tel: +86 10-8419 3739 E-mail: helen@umetal.com