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Revaluation set to boost China's
steel industry
BEIJING -
China's steel industry, the largest in the world,
will benefit from a stronger yuan, according to
industry officials and analysts. However, the
industry is now bidding farewell to its low-cost
era.
The yuan's recent 2.1% appreciation
will cut costs of imported materials, iron ore in
particular, by 3 billion yuan (US$369.9 million)
this year, according to Qi Xiangdong, deputy
secretary-general of China Iron and Steel
Association. According to the current iron ore CIF
(cost, insurance and freight) prices, Qi said, the
steel sector is expected to save up to 2.5 billion
yuan this year due to the stronger yuan. China's
iron ore imports will total 240 million tons this
year, he said. From January to June, the nation
imported 131 million tons of iron ore, up 33.4%
from last year. The yuan's appreciation could also
lower the import costs of scrap steel and coking
coal by some 500 million yuan this year, Qi said.
Scrap steel and coking coal imports will total 10
million tons this year.
Zhou Xizeng, an
analyst with CITIC Securities Co Ltd, told China
Daily that the steel sector will gain an extra 4%
growth in profits this year as a result of the
stronger yuan. "The yuan's appreciation will have
a positive impact on our steel sector in general,
as China's imports of steel products and related
materials remain much larger than exports," Zhou
said. China imported $35.7 billion of steel
products and related materials last year, compared
with $13.3 billion of exports, according to Zhou.
However, Luo Bingsheng, vice-chairman of
the steel association, indicated that despite the
stronger yuan, the steel sector has already "said
good-bye" to a low-cost era, due to the mounting
cost of raw materials. The average cost of steel
production in China will rise by around 15% per
ton this year compared with last year, Luo said.
"This situation indicates that China is
accelerating its pace in turning into a strong
steel producing nation from merely being a big
one," said Luo.
He predicted China's total
steel output will reach 330 million tons this
year, up from 273 million tons last year. The
nation's steel output grew by 28.3% to 164.9
million tons in the first half of this year
compared with the same period last year. The steel
sector's profit margins are shrinking due to
rising material costs and sagging finished steel
prices, Luo added.
Profits of China's top
68 steel makers grew by 27.2% year-on-year to 49.2
billion yuan in the first half of this year,
according to statistics from the steel
association. But the profit growth was down 37.6%
from 2004. Earlier this year, BHP Billiton, Rio
Tinto and Companhia Vale do Rio Doce, which
collectively account for more than 75% of global
iron ore production and trade, increased their
iron ore prices by 71.5% for 2005. Currently, the
average CIF price of iron ore in China stands at
$60 a ton.
The average steel price in
China tumbled by 10.5% from March to June of this
year due to an oversupply in the domestic steel
market, statistics showed. Qi said domestic steel
prices will not fluctuate dramatically from their
current levels in the second half of this year.
CITIC's Zhou said China's dipping steel
imports are unlikely to rebound strongly in the
second half of this year because international
steel prices remain much higher than those in the
domestic market, despite the yuan's appreciation.
On average, by the end of June, international
steel prices were 9.5% higher than domestic
prices. China's imports of steel products declined
by 26.8% year-on-year to 11.6 million tons in the
first half of this year, statistics showed. Luo
said China will import 24-25 million tons of steel
products this year, down from 29.3 million tons in
2004.
(Asia
Pulse/XIC) |
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