No rebound in steel until second quarter of next year, say experts

PUBLISHED : Tuesday, 16 December, 2008, 12:00am
UPDATED : Tuesday, 16 December, 2008, 12:00am

The mainland steel industry, the world's largest, would not see a significant rebound in demand until the second quarter of next year, even though Beijing had promised a series of measures to help, analysts and steelmakers said yesterday.

Crude steel output shrank 12.4 per cent last month from a year earlier to 35.19 million tonnes, the lowest level since April 2006, according to figures from the National Bureau of Statistics. The decline came as steel mills cut output and drew down stockpiles amid falling steel prices and demand.

For the first 11 months of the year, crude steel output rose 2.6 per cent to 463 million tonnes from a year ago.

But growth has fallen sharply, compared with the double-digit rates of the past few years, as the global economic crisis cuts demand.

'The central government's proposed measures to help the steel industry are definitely good news and will help [stabilise] the industry,' said Qi Xiangdong, vice-secretary general of the China Iron and Steel Association (Cisa).

However, details of the measures had yet to come out, and it would take time to observe their impact on steel demand, he said.

Fu Jihui, Angang Steel's executive director and company secretary, welcomed the government's measures, but he expected steel demand to start picking up only in the second quarter of next year.

Beijing might take further measures to revive its steel industry, including buying up steel stockpiles, offering 15 billion yuan (HK$16.97 billion) in subsidies for plant upgrades and giving higher export rebates, Minister of Industry and Information Li Yizhong said on Friday.

He said the situation was severe, since steelmakers were facing plunging prices with expensive raw material stockpiles.

Now that domestic steel prices have fallen 30 to 40 per cent from their peaks in June, small mills as well as the large ones are losing money.

Mr Li's remarks were the first indication that Beijing could build up reserves of steel. The industry is alreadyseen as a major beneficiary of the 4 trillion yuan stimulus package.

The steel industry plunged into losses in October as 71 large and medium-sized steel mills posted a combined loss of 5.835 billion yuan, the first monthly loss in six years, according to Cisa.

Other government departments are also working out ways to help the beleaguered industry.

A 30-point financial blueprint outlined by the State Council on Saturday said the country would speed up the launch of steel futures. Meanwhile, the National Development and Reform Commission said it would introduce measures to support the development of nine key industries, including steel, by quickening the pace of mergers and acquisitions among steelmakers and eliminating inefficient steel capacity.

'Buying steel products as government reserves would help support steel prices in the short term, and raising export tax rebates could help to cut steelmakers' cost burden,' said Xu Xiangchun, the chief information officer of steel data provider Beijing Ganglian Maidi e-Commerce.

'But such measures won't assist the industry to bottom out immediately.'

Steel prices were likely to find bottom soon and remain there until the first quarter, Mr Xu said. They will see a slow pick-up in the second quarter, when demand increases as infrastructure works begin.

But he said that now, when the industry is losing money, was a golden opportunity for the government to accelerate mergers and acquisitions and get rid of backward steel capacity: 'Crude steel output this year is around 498 million tonnes while capacity is 600 million tonnes. We must speed up the fade-out of outdated facilities.'

He added that the government's plan to use 15 billion yuan to support technical renovation next year could also help the industry to lay a sound new foundation.

China International Capital Corp said steel demand was expected to be stronger in the second half than the first half of next year as infrastructure projects kick in.

But CICC also said the toughest time for the steelmakers would soon be over, as steel prices bottom in the near term.