China’s Ministry of Industry and Information Technology has reported that the country’s crude-steel production increased by 2,4% year-on-year in January and February, and that the figure for February was 7,9% higher than that for January.
Output of steel products was also up, by 3,1%. The Ministry also reports that Chinese steel mills have now used up all the high-price iron-ore they bought last year.
Meanwhile, the China Association of Automobile Manufacturers announced that new-car sales in the Asian giant leapt by 25% in February, in comparison with figures for February last year, and by 12% in relation to the figure for January 2009. China is the biggest car market in the world, and February sales totalled 827 000 vehicles.
Beijing, seeking to boost domestic demand to counter the plunge in the country’s exports – which fell by 25,7% in February in comparison with figures for February 2008 – significantly reduced the sales tax on small-engined fuel-efficient cars. The auto sector, of course, is a major consumer of steel.
Speaking at a press conference in Beijing last week, Industry and Information Technology Minister Li Yizhong stated that “these are all the signs that point to a recovery in industrial sectors. But industry is still facing a serious situation. It is still in very difficult times. We cannot conclude that it has recovered.”
A couple of days later, Chinese Premier Wen Jiabao made global headlines when he affirmed: “I expect that next year both China and the world will be better off.” He assured that his government was ready and able to further stimulate China’s economy, if required – Beijing announced a $585-billion stimulus package in November. He did express concern about the almost half of his country’s cur- rency reserves invested in US government bonds. “We have made a huge amount of loans to the US. Of course, we are concerned about the safety of our assets. To be honest, I’m a little bit worried.”
But, while signs of recovery may be emerging in China, Chinese steelmakers are maintaining pressure on iron-ore-miners to cut their prices by 40% to 50%. The country’s sixth-largest steelmaker, Shougang, has demanded that 2009 iron-ore prices be close to their levels in 2007, to ensure, the group argues, reasonable profits for both steelmakers and miners. This would amount to a price cut of 50%. Shougang asserted that Chinese steelmakers would not accept prices at higher levels. The Chinese steel industry is the biggest in the world.
An analysis on the Brazilian mining news website, geologo.com.br, argues that this Chinese demand is a negotiating ploy, pointing out that last week the spot price for iron-ore was 15% down on the 2008 prices. This is a significant drop, but nowhere near 50%. Thus, the analysis argues, the Chinese steel companies will accept prices well above the level demanded by Shougang, and probably in line with the current spot price.
Meanwhile, Chinese steelmakers continue to take shares in iron-ore-miners. For example, Hunan Valin Iron & Steel group has just bought another 0,9% of Australian iron-ore-miner Fortescue, for $56-million. This followed Hunan Valin’s acquisition, just last month, of 16,5% of Fortescue for $770-million. This takes the steelmaker’s share in the miner to 17,4%.
Fortescue shipped its first iron-ore in May last year; it supplies the Chinese market. Its current annual production capacity is 55-million tons of iron-ore.
Shougang itself owns Peruvian iron-ore miner Shougang Hierro Peru and, in December, used two Hong Kong-based subsidiaries to buy 40% of Australia’s Mount Gibson Iron Ore.
Source: Mining Weekly
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