TPT September 2009

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76 September 2009 ›
Steel
Supply and demand begin to find balance
in a market driven by China
Here and there – mainly within the force-field of Beijing’s $586bn
stimulus plan for the Chinese economy – the price of steel is
edging up in response to strengthening global demand and higher
raw materials costs. And steel operations are being resumed to
replenish depleted inventories.
› China Steel, Taiwan’s leading steel maker, on 21 July announced
plans to restart a key blast furnace in August. The No. 3 furnace,
which ordinarily accounts for one-third of China Steel’s annual output
of 10 million metric tons, is one of four shut down for maintenance in
mid-April and scheduled for reactivation in September. A company
attaché ascribed the accelerated schedule to improved demand in
China, Taiwan, and the USA.
“We have to act quickly once the market is faring well,” this source
told Reuters in Taipei. “In fact, there is room for us to raise prices.”
› A day earlier, South Korea’s POSCO announced a second
domestic price increase in a month for its stainless steel. The
world’s No. 6 steel maker said its prices for hot rolled stainless would
rise by an additional 7.1%, to $2,387 a metric ton; for cold rolled by
6.5%, to $2,615, effective 27 July.
POSCO, whose stainless steel business took a loss in the first
quarter, said that the division turned profitable in April and was
expected to show a further profit in the second half as prices recover
in the global steel industry.
On 20 July cold-rolled stainless steel was trading at around $2,550
a metric ton in China, up some 36% from April lows.
› As for China itself – the world’s largest steel producing nation,
generating some 35% of total global demand – some contrarian
sentiments about steel production have already been expressed
by a spokesman for the Ministry of Industry and Information
Technology. According to Bloomberg News, Zhu Hongren said at
a conference on 22 June in Beijing that China should act now to
contain runaway growth in the domestic steel industry by withholding
project approvals.
Citing figures published by the China Iron and Steel Association
(CISA) for 2008, Mr Zhu reiterated that China’s demand for steel is
about 500 million metric tons per year. Its production capacity is 660
million mt per year.
Bloomberg’s Eugene Tang, in Beijing, noted that crude steel output
in China rose to a record 266.6 million mt in the first half as the
nation’s huge stimulus package spurred demand from builders and
car makers. Annualised, this exceeds the output of 460 million mt
projected by CISA for this year.
“The industry must produce according to market needs, and avoid
adding to excess capacity,” Mr Zhu said. “They should avoid
reckless investments. The government must also take action to
curtail additional investments by companies that are already in
excess.”
Changes in the way iron ore is bought and sold
may be on the way
At this writing, China’s 5 July detention of four executives of Rio
Tinto, the multinational mining group based in Britain and Australia,
has not been resolved. It is not even clear whether the charges
relate to criminal activity or to espionage, corporate or otherwise.
What is definite, however, is that Rio Tinto sells about half its iron
ore on the spot market; and China, the world’s largest customer for
iron ore, vital to steel making, has been pressing mining companies
to slash their ore prices.
In the Asia edition of the Wall Street Journal, Robert Guy Matthews
reported on an unintended consequence of China’s action in the
matter of the Rio Tinto employees: acceleration of a drive by steel
makers and miners alike for greater transparency in the ore market.
(“Industry Pushes New Iron-Ore Pricing Plan,” 20 July)
The proposed agreement – which could be in place by the New
Year, according to miners and steel makers prepared to say even
that much about the developing deal – would set iron-ore contract
prices on a quarterly rather than, as now, an annual basis. Quarterly
sales would likely mean more volatility in global steel prices. But
they would enable steel makers to adjust their prices, up or down,
four times in the course of a year instead of once. Mr Matthews
said: “They might also be likely to rely more on market supply and
demand, and less on secretive criteria, as is currently the case.”
The system now in effect generally involves one miner negotiating
behind closed doors with one big steel maker. While the longer-
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