Overcapacity and rising costs have depressedthe average profit margins of Chinese steelmakers to just 3.5 percent in2010, the lowest of any industry, according to the government.Photographer: Nelson Ching/Bloomberg
Wuhan Iron & Steel Group, AngangNew Co. and rival Chinese mills are expanding overseas andturning to specialty products to battle overcapacity in China,the world’s biggest producer of the metal.
Wuhan Steel, the nation’s fourth-biggest mill, is in talksto build plants or buy rivals in other countries, GeneralManager Deng Qilin said in Beijing while at the NationalPeople’s Congress. Angang may develop its specialty steelproduct business, General Manager Zhang Xiaogang said.
Overcapacity and rising costs have depressed the averageprofit margins of Chinese steelmakers to just 3.5 percent in2010, the lowest of any industry, according to the government.The nation’s new five-year building program will need more high-grade alloy for railroads and nuclear power plants, China Ironand Steel Association said.
‘Every steelmaker is trying to diversify their business,”said Hu Yanping, a Beijing-based analyst with researcherUC361.com. “But they aren’t all going to succeed.”
Wuhan Iron & Steel Co., the listed unit of Wuhan Steel, hasfallen 30 percent in Shanghai trading in the past year, comparedwith a 1.7 percent drop in the benchmark Shanghai CompositeIndex. Angang Steel Co., Angang’s unit, is down 34 percent inthe past year in Shenzhen.
The government plans to invest 800 billion yuan ($121billion) to build 6,000 kilometers (3,700 miles) of high-speedrail lines by 2012 to carry its industrial expansion inland.
Going Overseas
Magang (Group) Holding Co., China’s biggest maker of trainwheels, plans to expand its steel cutting and equipmentmanufacturing business, Chairman Gu Jianguo said in an interviewat the congress.
The nation’s steel demand may increase 3.5 percent thisyear, compared with a projected 13.6 percent growth in India and9.1 percent in the Central and South American regions, accordingto World Steel Association estimates in October.
“The government is encouraging the shift of surplus steelproduction capacity overseas,” Wuhan General Manager Deng saidMarch 7, without giving details on his overseas expansion plans.
Delong Holdings Ltd. (DLNG) a Singapore-listed Chinese steelmaker,is looking to build plants in Mexico and other countries,Chairman Ding Liguo said in an interview while attending thecongress. Angang in 2010 signed an agreement to jointly build a$168 million reinforcing bar plant in Mississippi in the U.S.
Building plants overseas is “a way to reduce global steeltrade frictions,” said Xu Xiangchun, chief analyst with MysteelResearch Institute. Also, it “will be welcomed as a boost tolocal employment and taxes.”
China’s steel-product exports gained 73 percent last yearto 42.6 million metric tons, customs data show. Apparent steeluse in the U.S. will likely advance 9.4 percent this year, theWorld Steel Association said.
Rising Costs
Asian steelmakers face rising costs. Mills in the regionmay be forced to pay as much as 44 percent more for hard cokingcoal in the three months starting April 1 after rain shut minesin Australia, according to the median estimate of 11 analystssurveyed by Bloomberg News. Iron ore prices have jumped 29percent in the past year, according to the Steel Index.
The nation’s largest steelmakers, including Angang andWuhan Steel, focus primarily on the production of ordinary steel.By moving into specialty products, the larger mills will competeagainst companies like Xining Special Steel Co. (600117) and ShandongJinling Mining Co.
Xining Special had gross profit margin of 14.65 percent in2009, compared with 9.68 percent for Baoshan Iron & Steel Co.,the biggest-listed Chinese steelmaker, according to datacompiled by Bloomberg.
“We’re studying to improve our product mix during the 12thFive-Year Plan,” which starts this year, Angang’s Zhang toldreporters on March 5 at the congress. “We have been strugglingto make profit at the home market. This five-year period will beour last chance to survive.”
--Helen Yuan. Editors: Tan Hwee Ann, Indranil Ghosh, PeterLangan.
To contact the Bloomberg News staff on this story:Helen Yuan in Shanghai athyuan@bloomberg.net
To contact the editor responsible for this story:Andrew Hobbs atahobbs4@bloomberg.net