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HSBC Steel Weekly
MIIT outlines plan for Chinese steel industry — can it
finally bring the cheer?
MIIT releases 12th five-year steel industry development plan
(2011-15) highlighting various issues and targets
Consolidation, efficiency and product improvement and raw
material security high on agenda
Expect 4% steel consumption CAGR over 2011-15e; demand
to peak only between 770-820 mtpa between 2016-20e
Consumption to peak at 770-820mtpa by 2016-20e
Consumption forecast for 2015 was pegged, by a regression model (of FAI and GDP)
between 710-810mtpa, while that by a survey of downstream industry at 750mt. MIIT
also predicted the steel demand to peak between 770-820mtpa during 2016-20e and
remain at elevated levels for some time. This is in line with what we have highlighted in
our report Structural vs. Cyclical where we argue that, comparing China’s urbanization
with those of developed nations, the steel demand intensity and growth in China is yet to
peak out. Under this scenario our iron ore model implies that iron ore prices are unlikely
to fall below USD100/t during the next three years as the high end of the cost curve which
is represented by low grade Chinese mines remain in play.
Ministry of Industry & Information Technology (MIIT) released its 12th five year plan,
but unveiled it only for the first time in public domain. Having claimed to have closed
c122mtpa of outdated capacity by 2010, the focus over next five years seems to be on:
Consolidation: Top 10 mills’ share of output expected to reach 60% from 48.6% in
2010 (34.7% in 2005) through acquisitions driven by market conditions. Plan also calls
for supporting development of 3-5 ‘internationally competitive’ enterprises (Baosteel,
Angang, Wugang, Shougang) and 6-7 key ‘locally competitive’ enterprises.
Efficiency improvement: Energy consumption expected to improve to below 580
kgce/t from 605 in 2010 (694 in 2005) and water consumption along similar lines as
well. Elimination of outdated capacity (all BF below 400 cum to be closed) and more
widespread use of dry quenching in coke making process will largely drive this.
Product improvement: Value-added-material’s share set to rise to 25.9% in 2015e vs.
18.5% in 2010— to help reduce steel intensity and lower energy usage and emissions.
Raw material security: High raw material prices squeezing steel margins factored as
one of the top four issues – with passing references being made at accelerating
consolidation of iron ore resources within the country. The plan also called for China
to secure an additional 100mtpa iron ore resources outside the country by 2015e.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HSBC Steel Weekly
MIIT outlines plan for Chinese steel industry — can it
finally bring the cheer?
MIIT releases 12th five-year steel industry development plan
(2011-15) highlighting various issues and targets
Consolidation, efficiency and product improvement and raw
material security high on agenda
Expect 4% steel consumption CAGR over 2011-15e; demand
to peak only between 770-820 mtpa between 2016-20e
Consumption to peak at 770-820mtpa by 2016-20e
Consumption forecast for 2015 was pegged, by a regression model (of FAI and GDP)
between 710-810mtpa, while that by a survey of downstream industry at 750mt. MIIT
also predicted the steel demand to peak between 770-820mtpa during 2016-20e and
remain at elevated levels for some time. This is in line with what we have highlighted in
our report Structural vs. Cyclical where we argue that, comparing China’s urbanization
with those of developed nations, the steel demand intensity and growth in China is yet to
peak out. Under this scenario our iron ore model implies that iron ore prices are unlikely
to fall below USD100/t during the next three years as the high end of the cost curve which
is represented by low grade Chinese mines remain in play.
Ministry of Industry & Information Technology (MIIT) released its 12th five year plan,
but unveiled it only for the first time in public domain. Having claimed to have closed
c122mtpa of outdated capacity by 2010, the focus over next five years seems to be on:
Consolidation: Top 10 mills’ share of output expected to reach 60% from 48.6% in
2010 (34.7% in 2005) through acquisitions driven by market conditions. Plan also calls
for supporting development of 3-5 ‘internationally competitive’ enterprises (Baosteel,
Angang, Wugang, Shougang) and 6-7 key ‘locally competitive’ enterprises.
Efficiency improvement: Energy consumption expected to improve to below 580
kgce/t from 605 in 2010 (694 in 2005) and water consumption along similar lines as
well. Elimination of outdated capacity (all BF below 400 cum to be closed) and more
widespread use of dry quenching in coke making process will largely drive this.
Product improvement: Value-added-material’s share set to rise to 25.9% in 2015e vs.
18.5% in 2010— to help reduce steel intensity and lower energy usage and emissions.
Raw material security: High raw material prices squeezing steel margins factored as
one of the top four issues – with passing references being made at accelerating
consolidation of iron ore resources within the country. The plan also called for China
to secure an additional 100mtpa iron ore resources outside the country by 2015e.
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