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Chinese steel may create global
glut
By Antoaneta Bezlova
BEIJING - After a long period of pulling
in huge imports of steel and thus boosting the
world market, China is gearing up for a new role
as a net steel exporter that may turn recent
global shortages of steel into oversupply and
depress regional and global prices.
China's output of steel products this year
is set to outpace consumption, driving up exports
and building up stocks. The feared scenario is
that Chinese steelmakers may be blamed as the
country's surplus products begin to flow in the
international market, pushing down prices and
possibly sparking a rash of bankruptcies in the
global steel industry. Because of this, Chinese
economic planners are preparing to deal with a
glut of steel on the world market as early as the
end of this year. Their plans also include
aggressive measures to arrest surging steel
exports and attempts to cool down the overheated
industry.
Under a ban effective May 19,
Beijing will prohibit factories in China from
making steel goods for foreign clients with
imported iron ore provided by overseas firms. "The
measure is in line with the state's macroeconomic
controls and the development policy for related
industries," the Ministry of Commerce said in a
statement this week.
The iron and steel
processing trade in China is now free from tariffs
and value-added taxes on material imports and
finished product exports. The ban on the iron and
steel processing trade is the third consecutive
action taken by the Chinese government within less
than two months to tame the nation's skyrocketing
steel exports, according to China Daily. On April
1, China eliminated a 13% tax rebate for steel
billet and ingot exports. It also slashed the tax
rebate for exports of some steel products to 11%
from 13% on May 1.
Moving to tighten what
they call "blind imports", industry officials are
now also going to stop small producers and
importers from importing iron ore - ostensibly to
strengthen their negotiating position with
overseas exporters who have capitalized on China's
huge demand for the raw material and raised their
prices. China relies heavily on imported ore and
the price hikes of imports increase financial
pressure on steel companies. In 2004, the country
replaced Japan as the world's largest iron ore
importer, buying 208 million tons - up from 70
million tons in 2000. The world's three largest
iron ore exporters - BHP Billiton, Rio Tinto, and
Brazil's Comanhia vale do Rio Doce - have raised
their prices to China by 71.5%. China's largest
steelmaker, Baosteel, negotiating on behalf of a
group of users, has agreed to the hike even though
it has meant paying as much as the Japanese
steelmakers. Industry experts estimate there are
40 million tons of iron ore currently stockpiled
in Chinese ports because there is no transport to
move it to inland plants.
''We have to
reverse the current trend of booming low-end steel
exports because the only benefactors are the iron
ore exporters," said Mei Xinyu, an official with
the research institute of the Ministry of
Commerce. In the future, only steel companies with
a capacity above 1 million tons and ore trading
companies with a registered capital of 10 million
yuan (US$1.2 million) will be able to import ore.
The new rules are expected to reduce the
number of iron ore importers from 523 to a few
dozen. Facing very strong internal competition,
smaller mills may be unable to buy ore and could
be forced out of business. The government has been
trying to rein in the runaway sector since 2003,
when the effects of a massive infrastructure
spending spree during the late 1990s became
evident in soaring prices for steel, pig iron,
scrap metal and non-ferrous metals. Since 2004,
Beijing has made local governments shoulder 25% of
the tax rebates for steel exports hoping this
would discourage local officials from propping up
small and inefficient steel mills.
Experts
have voiced concerns that unless the top
leadership acts decisively, there will be a hard
landing for the steel sector and all related
industries. China's production should rise at
least 16% from 270 million tons in 2004 to 345
million tons this year, according to the China
Iron and Steel Industry Association. Consumption,
however, is expected to rise only 10% to 343
million tons if the economy grows at the
government-set target of 8%.
Since 2000,
official data - which may well be an
understatement - reports a doubling of production
capacity. In 2003 alone, investment in steel
nearly doubled year-on-year - on top of which some
experts say local governments have invested in
steel mills whose existence has been hidden from
Beijing. The China Iron and Steel Association
estimates there are a further 150 million tons of
capacity being added to the mainland steel
industry over the next three to five years. The
projects monitored by the association span mainly
the country's coastal areas such as Shangdong,
Jiangsu, Shanghai, Zhejiang, Fujian and Guangdong.
The picture in the inland areas is murky, since
local governments avoid reporting about small
steel ventures that rely on old or hastily built
plants with outdated, high-pollution technology.
Domestic demand for steel is projected to
fall as the central government continues to apply
measures to curb overheated industries. Trying to
slow down fixed investment, authorities have been
canceling or delaying many large projects. The
resulting excess capacity in steel may drive up
exports and result in growing inventories.
China exported 5.19 million tons of steel
products in the first quarter of this year, up
219% from a year ago, statistics from the China
Iron and Steel Association show. Since China's
domestic prices for steel are currently 10% below
world rates, the country will be perfectly placed
to flood the globe with cheaper metal that could
bring international prices crashing down.
(Inter Press
Service) |
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