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China`s booming steel industry could be due for a rude awakening
Shanghai, Jan 05: After years of surging growth that made China the world`s biggest steel producer, the country faces a shakeout that could turn some elite companies into global competitors -- but at the cost of smaller mills.
Shanghai, Jan 05: After years of surging growth that made China the world's biggest steel producer, the country faces a shakeout that could turn some elite companies into global competitors -- but at the cost of smaller mills.
Steel demand in China is booming. But it isn't for the low-quality steel made by most mills, but rather the high-end steel products needed by Chinese makers of cars, appliances and ships, who heavily rely on imported steel products.
And while billions of dollars in investment poured into the industry in 2003, most went to the biggest, most advanced producers. As buyers get choosier and projected demand slows from its blistering 20 per cent-a-year pace, China's steelmakers face stiffer competition that could build up the biggest companies while forcing smaller outfits into mergers or bankruptcy.
World Steel Dynamics Inc, a New Jersey-based steel-analysis firm, is forecasting growth in demand will fall to an annual rate of just 6 percent in coming years with the slowdown possibly starting from the middle of this year.
Brussels-based International Iron & Steel Institute is more bullish but still says demand will fall to 12.8 percent this year. Those gloomy forecasts haven't stopped China's steelmakers from raising funds.
Investment in the metals sector more than doubled to 112.27 billion yuan (USD 13.6 billion) in the first 11 months of 2003, according to government figures.
And foreign producers are moving into China to meet demand from customers for better steel.
That's good news for top-end Chinese producers that are attracting foreign investment and technology, but bad news for smaller firms that will face even tougher competition. Japan's Nippon Steel and Luxembourg-based Arcelor launched an USD 800 million joint venture last month with China's top steelmaker, Shanghai Baosteel Group, to produce steel plate for cars. South Korean steelmaker Posco says it has invested USD 800 million in its joint ventures in China and plans to invest another USD 1.4 billion over the next two years.
But the Chinese government has warned against excessive expansion by the industry, warning of a possible steel glut and danger to banks that are financing development.
"Everybody seems to be building hot-rolled coil plants, so it's quite possible, if there were any type of a downturn on the demand side, that there would be an overcapacity situation," says Jonathan Woetzel, director at consulting firm McKinsey & Co in Shanghai. Hot-rolled coil is used to make high-end steel products for cars and appliances.
Bureau Report
Steel demand in China is booming. But it isn't for the low-quality steel made by most mills, but rather the high-end steel products needed by Chinese makers of cars, appliances and ships, who heavily rely on imported steel products.
And while billions of dollars in investment poured into the industry in 2003, most went to the biggest, most advanced producers. As buyers get choosier and projected demand slows from its blistering 20 per cent-a-year pace, China's steelmakers face stiffer competition that could build up the biggest companies while forcing smaller outfits into mergers or bankruptcy.
World Steel Dynamics Inc, a New Jersey-based steel-analysis firm, is forecasting growth in demand will fall to an annual rate of just 6 percent in coming years with the slowdown possibly starting from the middle of this year.
Brussels-based International Iron & Steel Institute is more bullish but still says demand will fall to 12.8 percent this year. Those gloomy forecasts haven't stopped China's steelmakers from raising funds.
Investment in the metals sector more than doubled to 112.27 billion yuan (USD 13.6 billion) in the first 11 months of 2003, according to government figures.
And foreign producers are moving into China to meet demand from customers for better steel.
That's good news for top-end Chinese producers that are attracting foreign investment and technology, but bad news for smaller firms that will face even tougher competition. Japan's Nippon Steel and Luxembourg-based Arcelor launched an USD 800 million joint venture last month with China's top steelmaker, Shanghai Baosteel Group, to produce steel plate for cars. South Korean steelmaker Posco says it has invested USD 800 million in its joint ventures in China and plans to invest another USD 1.4 billion over the next two years.
But the Chinese government has warned against excessive expansion by the industry, warning of a possible steel glut and danger to banks that are financing development.
"Everybody seems to be building hot-rolled coil plants, so it's quite possible, if there were any type of a downturn on the demand side, that there would be an overcapacity situation," says Jonathan Woetzel, director at consulting firm McKinsey & Co in Shanghai. Hot-rolled coil is used to make high-end steel products for cars and appliances.
Bureau Report