[Industry Alert] The Development of China’s Steel Industry Is not Optimistic in

The financial crisis of America in 2008 spreads the whole world, and also involves into the real economy. The global economy began to slow down in the second half of 2008, such as real estate market and automobile industry, which makes the steel industry bog down after six years continuous growth. The demand for steel in international market falls down and the step of reorganization slows down but the trade friction goes up, which makes the steel industry face severe situation. Chinese steel industry is one of the entities suffered most from international crisis.
The plan of 4 trillion yuan to stimulate economy in China, and the implementation of plans and detailed policy to stimulate steel and auto industry, brings hope to steel industry.

Ⅰ、The global economic depression leads the demand for steel shrinking, and the export of China’s steel faces more pressure.

According to the data from England authoritative statistic institute, the export of steel in China in November drops to the lowest point since June 2005, and the import also sets lowest record since February 2002. The export of semi finished steel, flat bar and steel tube of China in November drops to 4.4 million tons, and the export in June 2005 is 2.6 million tons.

The exports in November drops 66% compared with that in August, 39% compared with the 4.4 million tons in October. The export of steel in November drops dramatically, which also a signal for the trend of sharp decline of global economy.

With the further spread of international financial crisis, the even worsening European economy, the shrinking demand for domestic market and the price of ironstone and steel, makes the steel industry in China falls into trouble. In the second half of 2008, the price of domestic steel falls down dramatically, and many steel enterprises has to reduce the price or production to overcome difficulty. At present, we still doesn’t the signal for the ending of financial crisis, the global economy still in the trough, and the financial crisis may last further influence than our forecast. According to the nearest forecast report from IMF, the growth of global economy will slow down to 2.2% in 2009. The demand for steel will even lower than our forecast in 2009.

At the same time, the rise of foreign exchange of RMB is also a obstacle to the export of steel in China. Meanwhile, many countries carry out plans to stimulate economy with positive financial policy. According to the actual condition in different counties, although this policy is benefit to the demand for deformed steel bar and wires, the export duty of deformed steel bar in China remains 15%. The tariff policy becomes a obstacle between the exports and demand for the world. In addition, the steel export in China will also face huge pressure from trade protection. So, in such condition, the export of steel in China will increase obviously.

Ⅱ、The step of steel enterprise reorganization slows down

The capability of steel production in China is huge, but the decentralized capability for steel production leads bad efficiency, and the reorganization becomes to a strong trend. During the reorganization of steel industry in 2008, most of them happened between their own industries especially in Shangdong and Hebei. The regional steel enterprise reorganization compresses the space for large scale reorganization of traditional steel enterprise. The increased phenomenon of regional enterprise reorganization, especially the small scale reorganization, can’t promote the degree of centralization effectively, but separates the market and makes reorganization more difficulty.

The reorganization of steel industry in 2009 faces new situation, opportunities and challenges. According to the common market and policy environment, 2009 will be a good time for further reorganization.

According to the industry development of the world, the depressed industry will be a direct driving for large scale reorganization. Under the striking of financial crisis, the demand for steel in the whole world will be slow down and enterprise burden upgrades. It is forecasted that such condition will not be changed completely this year. With the increased operating burden of domestic steel enterprise, the reorganization will become to a very necessary factors.

At the same time, the difficulty for enterprise reorganization still exists. When the global economy declining, Chinese economy is relatively stable, and many large international steel enterprise have strong desire to enter Chinese market. The domestic small steel enterprises will become to the major objects for cooperation and reorganization. While the medium and small steel enterprise in domestic, especially members of private owned steel enterprise will prefer to cooperate and reorganize with foreign owned steel enterprise, which will become a obstacle during the reorganization processing for enterprise development.

Ⅲ、The international trade friction upgrades again

Under the circumstance of global economy depression, with the considering of protecting local produced product, the trade protection will be spread in the whole world and 2009 will face the climax of global trade friction. As a large steel manufacture, China may suffers severe trade friction. In actually, trade friction makes worse influence to global economy than to financial crisis, which will increase the economic running cost and make global crisis become even worse. Upon the recent situation, the international trade friction will become even worse.

In a word, the steel industry will be severely tried in 2009 and the situation is not optimistic. But we shall also consider some advantage for industry development, enterprise shall struggle for the opportunities. In terms of management, enterprises shall take relevant measures to cope with the decreased demand for steel and the lowing of steel price. At the same time, enterprises shall adjust industry structure positively and seek for ways for distribution to get the most profit. At last, enterprises shall support industry adjustment and reorganization to make enterprise becomes more centralization. On in such ways, China’s steel industry can cope with financial crisis easily and become much stronger.