Steel mills urged to regroup, prices to drop
(Xinhua)
Updated: 2005-04-24 10:35

Steel mills in China will face a hard time soon and the prices will see a sagging tendency as the government has decided to slow down the growth of the industry to ensure a sustained and coordinated development of the national economy.

An executive meeting of the State Council, chaired by Premier Wen Jiabao on April 20, approved a new development policy for the industry, which called on the steel mills to adjust product structure, reduce energy and resource consumption and enhance the competitiveness of their products by using new and high technologies.

The steel mills are also urged to regroup and adopt measures to prevent from overexpansion of their production capacity.

Statistics showed there are currently more than 800 iron and steel firms in China. The Shanghai-based Baosteel is the largest one. Last year, it produced 12 million tons of steel. Other major steel producers include Beijing-based Shougang Iron and Steel, the Wuhan Iron and Steel in central China's Hubei Province, the Maanshan Iron and Steel in Northeast China's Liaoning Province, the Tangshan Iron and Steel in North China's Hebei Province.

In 2003, there were 13 iron and steel makers in China whose annual output exceeded 5 million tons, the China Iron and Steel Association said.

Industry insiders predict that the new state policy is expected to help lower the prices of steel, further cutting the profits of the steel enterprises.

The industry is estimated to lose 3 billion yuan (US$362.76 million) in profits this year after the State Administration of Taxation abolished the export tax rebate policy for billet on April 1.

The losses may rise further to 4.7 billion yuan (US$568.3 million) if the administration decides to lower the export drawback policy for steel from 13 percent to 11 percent starting May 1.

Steel prices in the Chinese market dropped dramatically recently following a price hike in the first three months of this year as the domestic demand for steel declined after the government adopted the macro-control policy to ensure a "soft landing" of the nation's overheating economy.

In the first quarter of this year, China's investment in fixed assets hit 1,099.8 billion yuan (US$132.99 billion), up 22.8 percent year-on-year, statistics released Wednesday by the National Bureau of Statistics showed.

China's steel output has ranked first in the world for the past nine consecutive years, accounting for 14 percent of the world's total. In 2003, the steel output reached 220 million tons, and is projected to climb to 350 million tons this year, according to the association.

Meanwhile, China's steel demand has risen 20 percent a year on average since 2000 as consumers buy more cars and refrigerators and the country builds in preparation for the Beijing 2008 Olympics Games.

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