MAC: Mines and Communities

China update

Published by MAC on 2007-09-21

China update

21st September 2007

Now the world's premier steel exporter, China's excessive (and excessively cheap) output is beginning to raise concerns among officials over pollution and posible jeopardising of "sustainable economic development."

One Chinese economist claims that China has become "a steel product production base for the United States and other developed countries" since they "have moved away from primary industries like steelmaking, in part due to its high energy-consuming and polluting nature."

China's steel industry needs green revolution - MOFCOM official

Interfax China Metals

21st September 2007

China should make more effort to improve environmental protection measures within the domestic steel industry and raise steel product export prices, in order to balance Chinese and international steel product prices, a senior Ministry of Commerce economist, told Interfax at the 2007 China Steel Export Summit held in Beijing on Thursday.

"There is currently no official standard to measure energy consumption and emission control from steel mills in China, and the shortfall in environmental protection spending in China is one of the main reasons why Chinese steel product exports are cheaper than the international average; this can hardly be considered an edge," a senior economist from the Ministry of Commerce's Distribution Productivity Promotion Center, named Chen Kaixin, said.

Chen further commented that in recent years, China has become a steel product production base for the United States and other developed countries, who have moved away from primary industries like steelmaking, in part due to its high energy-consuming and polluting nature.

Statistics released by the London-based Iron and Steel Statistics Bureau (ISSB) show that China jumped over Japan, Russia and the EU25 in 2006 to become to world's largest steel products exporter, with each of those main exporting regions falling behind China by at least 40 million tons per annum.

Moreover, according to Chen, China's steel product export volume will remain at high levels this year, and the country will remain the world's largest steel product exporter for the foreseeable future.

However, the Chinese government does seem committed to curbing excessive exports through tax adjustments, and is likely to continue to issue restrictive policies such as canceling export tax rebates and increasing export taxes if and when it deems necessary.

The Chinese government levied an export tax of between 5 percent and 10 percent on a total of 83 types of steel products, including wire, hot-rolled plate and steel section on June 1 this year, following the previous cancellation of export tax rebates on the 83 types of steel product on April 15. In addition, the export tax on steel billet, steel ingot and pig iron was increased from 10 percent to 15 percent on June 1 this year, as Interfax previously reported.

China's current steel product export policies are expected to bring about a 23 percent year-on-year fall in export volume in the second half of this year to 20 million tons, a 40 percent drop from the first half of the year.

Upon questioning as to the likelihood of the government further restricting steel product exports by issuing export licenses, Chen said, "This may take a long time to take effect, not least because of the difficulty in setting a dividing line between qualified and unqualified."

"Theoretically speaking, further export tax increases or rebate cancellations will increase domestic steel mills' export costs, and lead them to increase export prices. However, as long as the international market accepts the prices, exports will continue. In the long run, if China's steel product export prices become too high, importers will either source from elsewhere or restart their own long-abandoned steelmaking industries. Hopefully, China will manage to balance iron ore imports and steel product exports in the long run, but at present it is too early to accurately predict when this will happen, especially as China's general trade balance is likely to take at least 5 to 10 years to be restored from its current surplus situation," Chen added.

Chen predicted that steel product prices in the domestic market will decrease in the second half of this year, while international prices will increase. In addition, as profit margins narrow for domestic steel mills, outdated mills and capacity will be phased out as a matter of course.

"The rapid expansion of China's steelmaking capacity not only runs counter to sustainable economic development, but also brings great pressure from the overseas market, and is mainly driven by the country's exports. However, falling exports brought about by increased export costs will also lead to increased domestic supply and a subsequent fall in prices," Chen said.

China has pledged to reduce energy consumption from 1.22 tons of standard coal per ton of industrial product in 2005, to 1 ton of standard coal per ton of industrial output by 2010, down 20 percent, and to lower emissions by 10 percent over the period.

However, unlike developed countries, where steel mills are usually required by law to spend as much as 10 percent of total production costs on energy consumption and pollution control measures, China has no such legislation, making steel production much cheaper.

According to statistics from China's Metallurgical Economic Research & Development Center, China's steel product export price stood at $388.47 per ton in the first half of 2006, with production costs of $363.73 per ton. In comparison, the per-ton production costs in Russia, India, the United States, Europe, Japan and Korea ranged from $380.47 to $500.03.

"In addition to the low price problem, the Chinese steel industry is relatively unconsolidated, which creates difficulties when attempting to raise prices across the board. However, the government has found an effective way to raise export prices by simply increasing the export tax," Chen said.

A Frame Max Inc. official, named Tom Adler, told Interfax, "As a construction company on the west coast of the United States, we mainly buy and will continue to buy steel products from China, no matter how prices may increase. We don't consider Russia or India as alternatives, because buying from those countries will mean enormously higher logistic costs. China's consecutive issuance of restrictive policies on steel product exports will definitely lead to increased export prices, but it is only fair for end-users to bear part of the cost to preserve the environment."

The recent surge in Chinese steel products flooding into overseas markets has stirred protests from foreign governments, and in some instances lead to anti-dumping and countervailing measures.

The U.S. steel industry has blamed the Chinese government for granting stealth subsidies to the Chinese steel industry, enabling it to export large amounts of cut-price steel products to the United States. The subsidies in question include discounted prices for land and energy, low-interest loans, debt clearing and debt-asset swapping, as well as low-cost or free acquisitions and mergers within the industry.

Other China mining and metals news

Platts Metals, 17 September

Interfax China Metals, 21 September 2007

* China's Minmetals Corp. is negotiating with Bolivian Empresa Metalurgica Vinto over a tin import agreement, as the south American government tries to encourage high value-added tin product exports. Minmetals says that, since tin reserves are on the decrease worldwide, it's eager to secure further supplies.

According to a Platts report, published on September 10th, Bolivian tin producer Empresa Metalurgica Vinto is close to signing a one-year sales agreement with Minmetals. The agreement is initially for 100 tons of tin ore and concentrate per month for three months.

Minmetals previously signed a memorandum of understanding with the Bolivian government in March 2006 for nonferrous metals resource development.

Last month, Empresa Metalurgica Vinto, which was taken over by the Bolivian government in February this year, signed one-year sales agreements with Swiss commodity trader Glencore International for 400 tons of tin ore and concentrate per month; with Japan's Toyota for 40 tons per month and with London-based RJH Trading for 50 tons per month, according to the Platts report.

China imported 2,789 tons of tin ore and concentrate in the first seven months of this year, down 31 percent from last year, the majority of which (2,046 tons) were imported from Bolivia. Other countries exporting tin ore and concentrate to China include Vietnam and Indonesia.

* Meanwhile, Minmetals has also announced a plan to purchase exploration rights to a ferrochrome mine in South Africa at cost of $6.5 million, owned by South African companies, Mission Point and Versatex. Minmetals plans to raise funds to acquire the exploration rights through a mixture of bank loans and company funds, according to the company announcement.

* China Nickel Resources Holdings Co. Ltd. (CNR), a Hong Kong-listed special steel producer formerly known as China Special Steel, intends to construct a special steel plant in Indonesia's South Kalimantan province, based on reserves of 150 million tons of iron ore and nickel ore.

The plant will have an initial melting capacity of 3 million tons of ore per annum, and will produce nickel-chromium corten steel, shipbuilding steel and construction-steel products. CNR is currently negotiating with the Indonesian government and hopes to start construction by the end of this year.

The company announced last week that its net profit for the first half of 2007 reached RMB 274.4 million ($36.49 million), skyrocketing 508 % from the same period last year.

* Sino-Mining International Investment Co. Ltd., a subsidiary of privately run Wanxiang Group, is searching for investment opportunities in nonferrous metal mining projects in Australia. It's currently in takeover talks for an undeveloped copper mine in Australia for $200 million.

According to a Chinese government report, the country's demand for copper will reach 6.5 million tons by 2020 - up by around 100 percent from 2006. according to a MOFCOM report.

While Chinese companies usually acquire stakes in overseas mines that are operational, or about to start-up, Zhang Jian, president of Sino-Mining, says that China's rising demand for mineral resources is making the number of such mines increasingly scarce, leaving many companies with no option but to shift to undeveloped mines.

Sino-Mining also plans to invest between AUD 8 million ($6.72 million) and AUD 10 million ($8.41 million) on a nickel prospecting and exploration project in Australia. It has investments in polymetallic mines in Russia and Indonesia, as well as a gold mine in Cambodia.


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