China's steel sector just keeps
growing By Wu Zhong, China
Editor
HONG KONG - China's iron and steel
industry could be regarded as a barometer of the
country's economy, which is still mainly propelled
by fixed-asset investment and export-oriented
manufacturing that consume a lot of raw materials.
Hence strong economic growth boosts demand of
steel products.
Therefore it is little no
wonder that steel production continues to climb
even though the industry has been a major target
of the government's two-year-old belt-tightening
policy. This strongly suggests that if Beijing
cannot rein in the galloping economy, it can
hardly cool down the steel industry alone.
The National Development and Reform
Commission (NDRC), China's top economic planning
body, has repeatedly warned about excessive
investment in the steel industry and demanded
that
local governments reduce their investment and
close down small factories with backward
technology. However, such warnings and demands
have largely been ignored at the localities as the
latest statistics show that steel production
recorded strong growth in the first half of this
year and is expected to increase even faster in
the second half because of robust demand at home
and for exports.
China's crude-steel
output in the January-June period jumped 18.26%
from a year ago to reach 199.47 million tonnes,
according to statistics released by the
semi-governmental China Iron and Steel
Association. If the production capacity realized
in June continued into the second half, steel
output for the whole of this year would reach 424
million tonnes, up 20.45% from last year, the
association said.
"The growth is too fast;
we should be concerned," Luo Bingsheng, vice
chairman of the association, was quoted by the
state-run Xinhua News Agency as saying. Luo toed
the NDRC's line to say the steel sector's main
tasks were still to prevent production capacity
growing too fast and speed up restructuring.
But just a week ago, Qi Xiangdong, deputy
secretary general of the China Iron and Steel
Association, claimed that reports about the steel
industry's overcapacity have been exaggerated.
"China's production capacity of iron and steel has
been overestimated while market demand has been
underestimated," Qi told a forum in Beijing on China's
macroeconomy.
Qi estimated that domestic
demand for steel alone will reach 400 million
tonnes this year. And he expected steel exports
would also surge because of growing global demand.
Qi said the country's macro-control policy should
keep domestic steel prices below the international
level in the second half of the year, according to
Xinhua.
Analysts say that as long as
China's economy is driven by investment and
exports of mainly manufactured goods, demand for
steel products will remain strong despite
government's efforts to rein them in.
"Infrastructure and property-development
projects, manufacturing export-oriented goods, all
need steel products. If market demand remains so
strong, how can the government curb it?" an
economics researcher in Beijing said. And if the
government's macroeconomic control policy failed
to slow down gross domestic product (GDP) growth,
it would be useless for the NDRC to demand that
the steel industry cool down, he added.
Not only has domestic demand increased,
China's exports of steel also soared in the first
six months of this year. China Customs statistics
show that finished-steel exports amounted to 17.09
million tonnes in the first half, up 47.71%
year-on-year. China exported 4.43 million tonnes
of steel products in June, more than twice the
figure for the same month last year. China's
imports of steel products, however, tumbled by
28.81% to 9.41 million tonnes in January-June.
With such a strong market, no wonder the
NDRC's repeated orders to close down small steel
plants have been largely ignored. In mid-July, the
NDRC's industrial department admitted in a
circular that "to close down furnaces smaller than
300 cubic meters is a heavy task for the local
governments ... So the order could hardly be
carried out." As a result, the NDRC has had to
extend the deadline for the closure of small
plants from 2007 to 2010.
However, despite
growth in production, the steel association said
profits of the steel industry dropped sharply in
the first half because of soaring raw-materials
costs, such as iron ore, coal and electricity. The
country's top 83 steelmakers earned 35.27 billion
yuan (US$4.4 billion) in the period, down 30.36%
from the same period of last year.
And as
steel production soars, China becomes more
dependent on imported iron ore, according to the
statistics of the steel association, which show
the country produced 193.2 million tonnes of iron
in the first half of this year. Calculating
according to iron content, China's dependence on
ore imports reached 53% in January-June period,
Xinhua said.
In the first half of this
year, large and medium-sized mines produced 245.5
million tonnes of iron ore, an increase of 63.7
million tonnes or 35% year on year. If iron-ore
output of local small mines was taken into
account, China's total output was about 295
million tonnes during the period.
The
statistics from the steel association also show
that investment in the steel industry slowed down
remarkably in the first half of this year to 13.7%
year-on-year. By comparison, growth of investment
in the steel industry was as high as 92.6% in 2003
but dropped to 27.5% in the whole of last year.
Analysts say this may have had less to do
with the central government's belt-tightening
policy as the figures seem to suggest. Instead, it
is more of a sign indicating that investment in
the steel industry now tends to be saturated so
there is not much opportunity for newcomers unless
they have huge capital and a sharper competitive
edge.
It is probably for this reason that
Luo, the vice chairman of the China Iron and Steel
Association, urged the government to raise the
threshold for foreign investment in the country's
steel industry. Luo said the iron and steel
industry was pivotal for the national economy and
therefore should not be controlled by foreign
capital. He suggested that the threshold for
foreign capital access be raised to safeguard the
national interest and the industrial interest,
according to another Xinhua report.
(Copyright 2006 Asia Times Online Ltd. All
rights reserved. Please contact us about sales, syndication and republishing
.)
