Latest news : steel prices : market reports : conferences 1 SBB Dubai 3 September 2007 Roger Manser...

latest news : steel prices : market reports : conferences

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SBB Dubai 3 September 2007 Roger Manser SBB Global Editor

China’s Steel Industry: A New World Reality


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1. How is China changing? 2. How is China changing the world

steel industry?3. Some conclusions

Structure of Presentation


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(1) How is China changing?

1. Becoming a manufacturing powerhouse2. Looking for self-sufficiency3. Investing in urbanisation/ new infrastructure

Consequences in China for steel:

1. Strong growth in production and consumption2. A growing excess of production over

consumption3. Slow consolidation/continuing fragmentation


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China- a new Workshop of the World


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Looking to be self-sufficient

Three Gorges Dam 3m+ tonnes


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Construction takes 200m t/y= 50-60% of China’s consumption


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Strong Growth in Production

Crude Steel Output 1949 – 2008f

0

50

100

150

200

250

300

350

400

450

500

19

49

19

51

19

53

19

55

19

57

19

59

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

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93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

f

in Mill t1949-1979

13.3 % p.a.

2000-2008f

19 %/ yr

1980-1999

7.1 % p.a.

in Million tonnes


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119 10994 105 108 116 128 131

160

194

244

279

334364

402

440

0

50

100

150

200

250

300

350

400

450

500

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007f 2008fSource: CISA, SBB

in Mill tMillion tonnes

Strong Domestic Consumption

2000-2008f:16%/ yr


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Fragmentation Continues

Typical Production Chge

Output 2005 2006 %

Top 10 Mills 5-23m 131.1 145.9 +11.3

Top 11-20 Mills 3-5m 56.1 63.9 +14.0

Other Reporting* 1-3m 103.9 125.3 +20.6

Non Reporting* <1m 64.7 83.6 +29.2

* Around 75 companies report to CISA

Source: CISA, SBB


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But Some M+A at the Top-End

Benxi 7m

Wuhan 14m

Anshan 15mBayi 4m

Anben

Tangshan 19m

Baosteel 23m

Handan 5m

Shougang 11m

Caofeidian 5m

Shagang 15mKunming 5m

Source:SBB


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How is China changing the world steel industry?

• Higher raw material prices• New investment, mainly in flats • Import substitution ….. now exports• Financialization, and global M+A

• Defensive moves


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CHINA’S DEVELOPMENT CHINA’S DEVELOPMENT

Commodity PriceImpact

Commodity PriceImpact

SteelTradeImpact

SteelTradeImpact

FinancialImpact

FinancialImpact

How China is changing the world

Defensive and Other ReactionsDefensive and Other Reactions

Investment


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Rising iron ore prices

0

10

20

30

40

50

60

70

80

90

Apr 93 Apr 94 Apr 95 Apr 96 Apr 97 Apr 98 Apr 99 Apr 00 Apr 01 Apr 02 Apr 03 Apr 04 Apr 05 Apr 06 Apr 07

$ cent/dmtu

Australia export FOB W.Australian port $ cent/dmtu

$ cent/dmtu

Australian iron ore price ex-port fob (SBB)


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FAI to Steel

0

100

200

300

2000 2001 2002 2003 2004 2005 2006

RMB

bn

New steel + ore investment

$35bn

Source: NBS


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New rolling capacities 2007-2009

Source: SBB

HRC

CRC

Plate

HDG

W. Rod

Sections

Bar etc

Total 175m t/y


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Import Substitution….now exports

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

2003 2004 2005 2006

Imports

Exports

Net Trade

in '000 t

Source: CISA

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

2003 2004 2005 2006

Imports

Exports

Net Trade

in '000 t

Source: CISA

HDG Imports are beginning their fall, with low quality HDG being

replaced

HRC Imports well on their way to being replaced

Source: CISA, SBB

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

2003 2004 2005 2006

Imports

Exports

Net Trade

in '000 t

Source: CISA


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0

10

20

30

40

50

60

70

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

f

2008

f

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

f

2008

f

in Mill t

Imports ExportsSource: CISA, SBB

Fall in Imports; Rise in Exports

Tonnes (m)

Source: CISA, SBB


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Some reported major plate/HRC investments (t/y): for start-up: 2007/08

Benxi +4m

Beitai +4m

Anshan +5m

Baosteel +3.7m

Handan +5.5m

Caofeidian +5.5m

Handan Zongheng +6m

Rizhao +5m

Maanshan +5m

Anyang +4m

Ningbo +4m

Tianjin +3.8m

Source:SBB


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Threat from Chinese ExportsSBB estimates

Producer-led prices inc High Strength, Tinplate, HG Flats, HG Pipe, Most Stainless/ Specials

13%

Producer-influenced prices inc Other HG Flats, Some Beams, Other Stainless etc

10%

Commodity prices inc Bars, Rods, Most Sections, Other Flats (for construction), Other Pipe

Quality: grade, dimension, market etc

48%

27%Most at threat

Moderate threat


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Demand Prices Profits M+A Finance

• ArcelorMittal• Tata Corus• Essar Algoma• SSAB Ipsco• NLMK Duferco

4,205 3,799

6,141

25,573

31,396

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2001 2002 2003 2004 2005Source: Company Reports

in Mill US$

2001-5: Steel suppliers earn more

731 27

91107

200

165

117

2003 2004 2005 2006

$bnNumber

2003-6: Global consolidation


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Open to Foreign M+A

Dislike of Foreign M+A

Dislike of Foreign M+A by Companies


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SBB’s Conclusions for China:

• A slow-down in production and consumption growth• No real restructuring through M+A• Supply side export controls?• Smaller mills may soon face squeeze

BUT • Crude production soon @ 500m t/y• Some decline in exports, in due course


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SBB’s Conclusions for China and the World

• Demand strongest in emerging markets• Three scenarios:

• Insufficient new capacity globally Growth in CN exports/AD+CVD

• Stronger RMB, curbed GDP, licences Decline in exports

• Decline in global GDP growth (CN ) Prices weaken


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Other Pointers for the Future

• Higher raw material prices for some time• Growth outside Europe - GHGs• More complex global supply chains

• More differentiation in finished qualities• More price volatility/shorter cycles

• Reference prices• Global M+A less likely

• But more local M+A probable


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THANK YOU

Have you got a China steel map yet?

US map also available


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For a copy of the presentation:

e-mail [email protected]

Latest news : steel prices : market reports : conferences 1 SBB Dubai 3 September 2007 Roger Manser...

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