Stabilizing Forces Set To Prop Up The Steel Sector

　　China's steel industry will face both challenges and opportunities this year as most of the provinces have adjusted their GDP growth target to a lower level.

　　After the central government decided not to evaluate local government's performances based on GDP growth, about half of the provinces cut their 2014 GDP growth target to lower than 10 percent for slower but reasonable economic development.

　　"As a consequence of the lower GDP growth targets, domestic steel consumption will be weakened this year. Meanwhile, the companies don't have to keep production up under pressure from local governments' administrative intervention," said Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute.

　　Hebei, Jiangsu and Shandong provinces, all big steel producers, cut their 2014 GDP growth rate by 0.6 to 1 percentage point, which will affect downstream steel demand and upstream production, he said.

　　Nationally, the domestic demand for steel products will grow slightly at 3.2 percent to 715 million metric tons this year, according to estimation of the institute.

　　The World Steel Association predicted in October that global steel demand would increase by 3.3 percent to 1.52 billion tons in 2014. Demand from emerging economies was expected to grow even more, by 3.8 percent.

　　China was the only one that will see a drop in steel demand growth in 2014.

　　"In fact, it's a good opportunity for China's steel companies to adjust their development mode and improve industrial structure when the growth for steel demand is slowing down," said Zhang Lin, a senior researcher at the Lange Steel Information Research Center.

　　She said it was the toughest year for China's steel companies since 2012, when they suffered from high raw material costs and falling prices in the market.

　　The major steel companies, accounting for 80 percent of the country's total output, saw an overall profit of 1.58 billion yuan ($254 million) in 2012, a 98.22 percent drop from the previous year, according to the China Iron and Steel Association.

　　Zhang Changfu, secretary-general of the association, said it was "extremely harsh" that such a huge industry had achieved such low profits.

　　But the industry started to warm up over the past year, achieving a total profit of 22.89 billion yuan, said Li, of the metallurgical institute.

　　China imported 819.76 million tons of iron ore in the past year, a 10.3 percent increase compared with the previous year.

　　The average iron ore import price remained flat, at about $128 a ton.

　　But Li said prices of imported iron ore were still higher than domestic ones.

　　"Under such circumstances, giant iron ore producers have been swallowing the steel companies' profits," said Li.

　　He said China's steel industry is bound to face meager profits as it shifts to a slower, more stable growth model.

　　"Challenges are ahead," Li said. "The severe overcapacity problem in the industry caused vicious competition. The central government has been taking measures to cut capacities that cannot meet the environment standards."

　　Plus, he said, more rigorous environmental standards for production will bring higher costs directly to companies.

　　Rising costs for steel mills also will come from ongoing pricing reform of resources such as water, electricity and natural gas, Li said.

　　Li also said Chinese steel producers will face tougher trade protectionism this year as many countries want to protect their own industries, build employment and revitalize their economies.

　　In 2013, there were 17 cases of trading investigation targeting Chinese steel companies' exports.

　　In addition, China used to export steel products to other developing countries, including India, Vietnam and Indonesia, which now are working on building their own steel production projects.

　　That will affect China's steel exports to some extent, said Li.

　　In 2013, China exported 62.34 million tons of steel products, up 11.9 percent year-on-year. Export volume to India, Thailand and South Korea all declined compared with the previous year, while exports to countries including Vietnam, the Philippines and Malaysia increased, according to the institute.

　　In terms of the domestic market, there are some aspects that will help slow the country's steel consumption.

　　According to the 12th Five-Year Plan (2011-15), China will build 36 million affordable apartments, which translates to 10 million affordable apartments added annually in the near term.

　　That construction will increase domestic steel use.

　　The central government plans to invest no less than 1.4 trillion yuan in boosting railway infrastructure over the next two years. The key area for this investment will be the western region, which will raise steel use in the area. The nation's machinery industry is predicted to achieve 12 percent growth in production and sales this year, the China Machinery Industry Federation said.

　　Cai Weici, vice-president of the federation, estimated that, starting this year, the industry's growth rate will start to stabilize.

　　Li predicted that the sector will consume about 140 million tons of steel products, up 5.3 percent this year.

　　The auto sector will consume 50.7 million tons of steel this year based on the sector's steady growth.

　　The energy sector, as well as shipbuilding and electronic appliances, also will see a slight uptick in steel consumption.

　　(Source: China Daily)