Beijing to discuss steel industry incentives and consolidation

PUBLISHED : Tuesday, 13 January, 2009, 12:00am
UPDATED : Tuesday, 13 January, 2009, 12:00am

The mainland Cabinet will discuss measures this week, such as tax cuts and incentives, to promote consolidation in the slumping steel industry.

The steps are expected to be implemented 'very soon' and are separate from the central government's 4trillion yuan (HK$4.54 trillion) stimulus package, which is slated for implementation over the next two years.

The government earlier said it planned to raise tax rebates on exports of the metal, especially high value-added steel, to cushion the impact of slowing overseas shipments.

Figures from the China Iron and Steel Association last month showed that 71 large and medium-sized steel mills had combined losses of 12.77 billion yuan, more than double the losses in October.

Forty-eight mills, including leading companies, recorded losses, compared with 42 in October, when the industry posted a combined loss of 5.84 billion yuan.

But a Credit Suisse report said poor 2008 fourth-quarter and 2009 first-quarter results should have already been factored in, while stabilising spot steel prices would pave the way for the out-performance of steel stocks, such as Angang Iron & Steel, Baoshan Iron & Steel and Maanshan Iron & Steel, in the coming three to six months.

Besides implementing supportive measures for the steel and car industries, the state may buy 200,000 tonnes of zinc this week, as the country stocks up on cheap raw materials.

But a 200,000-tonne purchase would only be half the amount suggested by the China Nonferrous Metals Association, which has also proposed the state buy 400,000 tonnes of copper and 20,000 tonnes of nickel.

On the other hand, Beijing has discarded a plan to buy copper to support domestic smelters because producers are still profitable and inventories are not high.

'We previously had a plan to build up copper reserves, but it now seems we've had to suspend it,' an official source told Reuters. 'It's because of the price.'

Shanghai's most active copper futures contract, for April delivery, appears to have bottomed out over the last month, rising 1,180 yuan to 28,190 yuan yesterday.