Steel De-capacity Promotes All-around Upgrading in China Steel Industry. Outlook for Market

Transcription

1 Deep Insight into China Steel Industry Steel De-capacity Promotes All-around Upgrading in China Steel Industry Outlook for Market Wu Wenzhang, Chairman, SteelHome 6 December 217, Dubai

2 SteelHome Profile SteelHome Website is an authoritative, leading and independent website in Chinese steel market, providing information, consultancy, data, industry events and E-commerce to global steel companies, raw material suppliers, traders, logistics companies, steel users, government departments, industry associations, financial & research institutes etc. The number of registered members has been 25,. SteelHome is strategic partner of World Steel Dynamics, American Metal Markets, Metal Bulletin, Bloomberg, Reuters. Almost all the big-scaled steelmakers subscribe SteelHome, using price, inventory, transaction, production, capacity, analysis etc. SteelHome launched Internet Steel Exchange Cloud on 28 September 215, which provides spot trading, online payment, supply chain financing, inventory management, warehousing and distribution, customer relationship management, office automation and market information. SteelHome was listed in National Equities Exchange and Quotations on 17 December 215. (Securities abbr.: SteelHome; Stock code: )

3 XIV Steel Development Strategy Conference XIV Steel Development Strategy Conference, to be held on April 218 in Shanghai. Welcome to hear 5+ industry experts voices, network with 1+ delegates, and showcase your products to 15+ steelmakers in China. BJ Zhuang Group Manager Business Develop Peter F Marcus, Managing Partner, Robert Williamson, Executive Consultant Fortescue Metals Group World Steel Dynamics Inc Association of Mining and Exploration Companies Time: April 218 (Simultaneous translation will be provided) Venue: International Convention Center, Shanghai, China Who to Attend: Steelmakers, Miners, Buyers, Financial Institutions, Equipment/Technology Suppliers

4 Steel De-capacity Promotes All-around Upgrading in China Steel Industry CONTENT I Steel De-capacity Promotes All-around Upgrading in China Steel Industry II Outlook for China Steel Market

5 Steel De-capacity Promotes All-around Upgrading in China Steel Industry I Steel De-capacity Promotes All-around Structural Upgrading in China Steel Industry Since end of 215, Chinese government has initiated supply-side structural reform which mainly highlights De-capacity, De-stocking, De-leverage, Cost-reduction and Short-board-filling. China will strictly control newly-added capacity, implement law and industry policy in terms of environmental protection, energy-consuming, quality, safety and technology etc., eliminate backward capacity, establish long-acting mechanism to avoid the re-startup of ditiaogang steel and accelerate M&As amid steel industry on the back of supply-side reform. 1. Target for 22: crude steel output to be within 1. billion tons, capacity utilization rate around 8%, industry concentration (CR1) of top 1 steel enterprises 6%. China in totally eliminated mln tons of ironmaking capacity, mln tons of steelmaking capacity, and dismantled mln tons. At present, China s crude steel capacity has fallen to around 1. billion tons. Capacity utilization rate was 85.2% based on annualized crude steel output in October. We need to point out that China s crude steel increase in 217 was caused by CISA-member steelmakers output addition which offsets ditiaogang steel production (for ditiaogang steel, only steel production used to be recorded instead of crude steel). Then production of steel products will basically keep unchanged.

6 Steel De-capacity Promotes All-around Upgrading in China Steel Industry Target for 22: No More Than 1 Blnt of Crude Steel Capacity and 8% of Utilization Rate 12 1 tons Production Capacity Capacity utilization % e 5 Source : SteelHome China bans the newly-added capacity; newly-built capacity should be replaced by existing backward capacity. Target: in 22, China s crude steel capacity will be within 1 billion tons.

7 Steel De-capacity Promotes All-around Upgrading in China Steel Industry Target for 22: Concentration Rate of Top 1 Steel Enterprises to 6% 9 1 tons Production TOP1 rate,% % e Source : SteelHome Multi-regional or multi-ownership system M&As among China steel industry will be actively introduced. By 22, concentration rate of top 1 mills of the nation will be 6%, a rise of 23.9 percentage pints over Jan-Oct 217.

8 Steel De-capacity Promotes All-around Upgrading in China Steel Industry Region Iron making China De-capacity in (unit in 1,t) Steel making Ditiao gang Iron making Steel making Ditiao gang Region Iron making Steel making Ditiao gang Iron making Steel making Tianjin Hunan Hebei Guangdong Shanxi Guangxi Inner Mongolia Chongqing Liaoning Sichuan Jilin Guizhou Heilongjiang Yunnan Jiangsu Tibet 4 Zhejiang Shaanxi Anhui Gansu Fujian Qinghai 5 5 Jiangxi Ningxia Shandong Xinjiang 9 5 Henan Central enterprises Hubei Total Ditiao gang Source : SteelHome China in totally eliminated mln tons of ironmaking capacity, mln tons of steelmaking capacity, and dismantled mln tons.

9 Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Steel Capacity Utilization Rate Has Increased in tons Production Capacity Capacity utilization % Capacity utilization rate in 216 was 77.1%, 5.6 percentage points higher than 215. In October 217, the rate was 85.2%, 8.1 percentage points higher than Source : SteelHome 5

10 Steel De-capacity Promotes All-around Upgrading in China Steel Industry Crude Steel Output Jan.-Oct. 217 China Crude Steel and Steel Products Output in Jan-Oct 217 Jan.-Oct. 216 Unit:1 tons Up/Down Up/Down,% Up/Down Up/Down,% National CISA Members Others Steel Output Jan.-Oct. 217 Jan.-Oct. 216 Up/Down Up/Down,% Up/Down Up/Down,% National CISA Members Others Output Jan.-Oct. 217 Jan.-Oct. 216 Up/Down Up/Down,% Up/Down Up/Down,% Ditiaogang Steel (e) China s crude steel increase in 217 was caused by CISA-member steelmakers output addition which offsets ditiaogang steel production (for ditiaogang steel, only steel production used to be recorded instead of crude steel). Then production of steel products will basically keep unchanged.

11 Steel De-capacity Promotes All-around Upgrading in China Steel Industry 2. China steel export dives sharply, and international steel production increases In the first ten months of 217, China s steel export was mln tons, down mln tons or down 3.4%; on year annualized export was 76 mln tons, falling mln tons or down 31.6% on year. Longs, seeing the biggest decrement, registered mln tons of exports in the ten months, down mln tons (86.1% of total decrement), down 59.2% on year. In the first ten months of 217, world crude steel output (excluding China) was 71.3 mln tons, an increment of 34.2 mln tons or up 5.1% on year. During the given time, China s crude steel export decreased by mln tons. The contribution rate of export reduction in China against global steel production was 82.7%. Chinese steel export price has increased. November export quotation of rebar and HRC is 54 dollars/t (FOB, China) and 56 dollars/t (FOB, China), up 16.7% and 15.5% compared to December 215.

12 Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Steel Exports Dived Sharply 12 1 tons Net. 1 tons 12 1 Imports Exports Net.Exports e Source : China Customs, SteelHome In the first ten months of 217, China s steel export was mln tons, falling mln tons or down 3.4% on year; annualized export was 76 mln tons, a decrement of mln tons, down 3.2%.

13 Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Steel Export by Product in tons Long Tubes Flat Others Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Export 1 tons Jan.-Oct. 217 Jan.-Oct. 216 Up/Down Up/Down,% Up/Down Up/Down,% Steel Long Flat Source : China Customs, SteelHome

14 Steel De-capacity Promotes All-around Upgrading in China Steel Industry Global (Excl. China) Crude Steel Production and Apparent Consumption in mln tons Production A.S.C P.growth% A.growth% % mln tons 1-1, , 216 Up/Down Up/Down,% Up/Down Up/Down,% World (excl China) Output China Net Export of Crude Steel World ASC (excl China) Source : WSA, SteelHome

15 Steel De-capacity Promotes All-around Upgrading in China Steel Industry /1/9 Rebar Rebar Imp/Exp Volume in China and Several Countries HRC Imp/Exp Price in China and Several Countries $/t 215/3/9 215/5/9 215/7/9 Jun. 216 China Export USA Import Turkey Export C.I.S. Export E.U. Import 215/9/9 215/11/9 Jul /1/9 216/3/9 Aug /5/9 216/7/9 Sep /9/9 216/11/9 Oct /1/9 217/3/9 Nov /5/9 217/7/9 Dec /9/9 217/11/9 Jan. 217 E.U. Import Source : SteelHome /1/9 Feb. 217 $/t 215/3/9 215/5/9 Mar /7/9 215/9/9 Apr /11/9 216/1/9 May /3/9 216/5/9 Jun /7/9 216/9/9 Jul. 217 China Export C.I.S. Export 216/11/9 217/1/9 Aug /3/9 217/5/9 Sep. 217 USA Import E.U. Import China Export Turkey Export C.I.S. Export USA Import E.U. Import HRC Jun. 216 Jul. 216 Aug. 216 Sep. 216 Oct. 216 Nov. 216 Dec. 216 Jan. 217 China Export C.I.S. Export USA Import Feb. 217 Mar. 217 Apr. 217 May 217 Jun. 217 Jul. 217 Aug. 217 Sep /7/9 217/9/9 Oct. 217 Oct /11/9 Nov. 217 Nov. 217

16 Steel De-capacity Promotes All-around Upgrading in China Steel Industry 3. De-capacity pushes forward all-around rally in China steel industry: price spike in steel and raw materials during ; huge increase in steelmakers profit; falling debt ratio in steel enterprises In Nov 217, SteelHome (China) Rebar Price Index, HRC Price Index, Iron Ore Index, Coke Index and Coking Coal Index increased 121.%, 12.%, 54.7%, 146.3% and 155.5% compared to December 215. In 215, CISA-member steelmakers reported a loss of billion RMB. In the first ten months of 217, these companies registered billion yuan of profit, soaring by percent on year; and debt ratio fell to 68.5 percent, compared to 7.1 percent at the end of 215.

17 Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Steel and Raw Materials Market Prices Rallied up Sharply price in RMB/t Nov. 217 Dec. 215 Up/dow n Up/down % Rebar 2mmHRB HR 5.75mmQ Iron ore Qingdao 62% Iron ore Tangshan 66% Grade I Coke Hebei Coking coal Shanxi

18 Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Major Steel Enterprises Economic Benefits Have Obviously Improved 2 1 mln Rmb Profit margin % Profit Profit Margin -4. Source : CISA, SteelHome In the first ten months of 217, CISA members reported billion yuan of profit, an explosion of % on year; profit margin was 4.45%, up 3.37 percentage points than 216.

19 Steel De-capacity Promotes All-around Upgrading in China Steel Industry Debt Ratio in CISA-member Steelmakers Declines 6 1 mln Yuan Debt Assets Debt Ratio % Source : CISA, SteelHome 5 In the first ten months of 217, debt ratio of CISA members was 68.5 percent, down 1.1 percentage point from end of 216, or down 1.6 percentage point from end of 215.

20 Steel De-capacity Promotes All-around Upgrading in China Steel Industry 4. In coming ten years, China steel consumption will remain high. Manufacturing industry will be new rising driver for China s steel demand, and steel consumption from property will step down. China crude steel cumulative consumption per capita in 216 was 7.59 tons, may by 235 reach the level in developed countries when they realized industrialization and urbanization. Forecast for 22: crude steel consumption 78 mln tons; construction steel consumption 4 mln tons, accounting for 51.3% (-2 percentage points from 216); Forecast for 225: crude steel consumption 75 mln tons; construction steel consumption 37 mln tons, accounting for 49.2% (-4 percentage points from 216).

21 Development Trend of China Steel Industry Per Capita Crude Steel Cumulative Consumption in China VS Developed Countries 5 45 tons World U.S.A U.K. Germany Unit: ton France Japan Developed country(5) C.I.S. China U.K U.S.A Germany France Japan Developed Country(5) C.I.S China World Source:SteelHome China crude steel intensity per capita in 216 was 7.59 tons, around 9 tons lower than tons in developed countries (UK, France, USA, Germany, Japan) when they realized industrialization and urbanization. China may reach the level by 235 based on current consumption volume.

22 Development Trend of China Steel Industry Prediction on China Steel Consumption in 22 & Container, 3, % 22e Container, 4, 1% 225e Container, 5, 1% Household Electrical Appliances, 12, 2% Ship building, 16.7, 2% Hardware, 18, 2% Energy, 29.7, 4% Others, 68, 9% Real estate, 25, 32% Hardware, 18, 2% Household Electrical Appliances, 12, 2% Energy, 33, 4% Ship building, 18, 2% Others, 69, 9% Real estate, 22, 28% Hardware, 18, Household 2% Electrical Appliances, 12, 2% Energy, 3, 4% Ship building, 18, 2% Others, 65, 9% Real estate, 2, 26% Machinery Industry, 153, 2% Automobile, 63, 8% Infrastructure Construction, 13, 17% Other Buildings, 33, 4% Machinery Industry, 16, 21% Automobile, 66, 8% Infrastructure Construction, 145, 19% Other Buildings, 35, 4% Machinery Industry, 165, 22% Automobile, 7, 9% Infrastructure Construction, 135, 18% Other Buildings, 35, 5% 1 mln tons Real Estate Infrastructure Construction Other Buildings Machinery Industry Auto Ship building Container Household Electrical Appliances Hardware Energy Others Total e e Source : SteelHome

23 Steel De-capacity Promotes All-around Upgrading in China Steel Industry 5. Steel de-capacity promotes all-around structural upgrading in China steel industry. China EAF steel in total steel output will considerably go up as scrap reservoir increases. Then China s demand for iron ore will weaken. China scrap reservoir was 118 mln tons in 216, will reach 182 mln tons in 22 and 29 mln tons in 225. China EAF steel output was 42.4 mln tons in 216, is expected to be 75 mln tons and 1 mln tons by 22 and 225 respectively (8.8% and 12% of total crude steel output). China pig iron output was 7 mln tons in 216, will be 7 mln tons and 67 mln tons by 22 and 225 (72 mln tons in 217); iron-to-steel ratio was 86.7% in 216, is forecasted to be 82% and 8% in 22 and 225 (down 4.7 percentage points and 6.7 percentage points compared to 216). China iron ore consumption (Fe62%) was 1.16 billion tons in 216, will be 1.16 billion tons in 22 and 1.11 billion tons in 225 (flat and down 5 mln tons from 216). 6. In the future, China steel industry will mainly focus on meeting domestic demand. China, to benefit from One Belt One Road Initiative, will develop capacity cooperation with seaborne partners with advantages in equipment, technology and management.

24 Development Trend of China Steel Industry Prediction on China Scrap Reservoir in 22 & tons Source SteelHome China s scrap reservoir was 118 mln tons in 216; expected to 182 mln tons in 22 and 29 mln tons in 225.

25 Development Trend of China Steel Industry Prediction on China EAF Steel Output in 22 & tons Crude Steel Electric Furnaces Rate,% % e 225e China s EAF steel output is expected to 75 mln tons in 22 (8.8% of total) and 1 mln tons in 225 (12% of total). Source : SteelHome

26 Development Trend of China Steel Industry Prediction on China Pig Iron and Crude Steel Output in 22 & tons Pig iron Crude steel Iron / Crude % e 225e 6 Source SteelHome China s pig iron output is expected to 7 mln tons in 22 (iron-to-steel ratio 82.4%, down 4.7 percentage points from 216) and 67 mln tons in 225 (iron-to-steel ratio 8%, down 6.7 percentage points ).

27 Supply/Demand Structure Scenario of China Steel Industry Prediction on China Iron Ore Demand in 22 & tons Pig iron Iron ore 62% e 225e Source SteelHome China s 62% iron ore demand is expected to 1.7 bln tons in 22 (down 9 mln tons from 216) and 1. bln tons in 225 (down 16 mln tons from 216).

28 Supply/Demand Structure Scenario of China Steel Industry China Steel Industry Will Mainly Focus on Meeting Domestic Demand 9 1 mln tons Production Exports Ra te,% % e 22e 225e Source SteelHome In 22 and 225, China crude steel consumption is expected to 78 mln tons and 75 mln tons; output to 85 mln tons and 83 mln tons; export on crude steel basis to be 85 mln tons and 93.1 mln tons repesctively.

29 Outlook for China Steel Market II Outlook for China Steel Market 1. China GDP rose by 6.9% in Q1-Q3 217; is expected to rise by 6.9% in 217, by 7% in 218 and 6.5-7% in e 218e 219e 22e F.A.I 7.3% 8% 7-8% 7-8% Investment in infrastructure construction 19% 19% 18-19% 18-19% Investment in real estate development 7.5% 7.5% 6-7% 6-7% Manufacturing industry F.A.I 4.1% 4.5% 4.5% 4.5% Foreign exports 7% 5% 5% 5% Social consuming goods retails: 1.3% % % % CPI 1.6% 1.8% 2% 2% PPI 6.5% 3-4% 3% 3%

30 Outlook for China Steel Market China GDP Forecast in China F.A.I Forecast in mln GDP growth% % mln F.A.I growth% % Q3 217e 218e 219e 22e e 218e 219e China Foreign Export Forecast in China Retail Sales Forecast in e 3 1 mln $ Exports growth% % mln Retail Sales growth% % e 218e 219e 22e e 218e 219e 22e Source : NBSC, China Customs,SteelHome

31 Outlook for China Steel Market China Investment in Real Estate Development Forecast in China Manufacturing Industry F.A.I Forecast in mln Investment in real estate development grow th% % mln Manufacturing Industry F.A.I grow th% % e 218e 219e 22e e 218e 219e China Infrastructure Investment Forecast in China CPI & PPI Forecast in e mln Infrastructure Investment grow th% % PPI,% PPI CPI,% CPI e 218e 219e 22e e 218e 219e 22e Source : NBSC, SteelHome

32 Outlook for China Steel Market II Outlook for China Steel Market 2. Some cities in North China are limiting production, which will cause a reduction of 25 mln tons of iron and steel production (.2 mln tons a day). 3. Outlook for 217: crude steel output 85 mln tons (+5.1% on year); steel output 1.8 billion tons (-5.1%); steel import 13 mln tons (flat); steel export 75 mln tons (-31.1%); apparent consumption of crude steel 785 mln tons (+11%). Outlook for 218: crude steel output 855 mln tons (+.6% on year); steel export 75 mln tons; apparent consumption of crude steel 79 mln tons (+.6%). Outlook for : crude steel output 85 mln tons; steel export 7-9 mln tons; apparent consumption of crude steel mln tons.

33 Outlook for China Steel Market Production Limitation During Winter Heating Season province Cities Cutback rate Pig iron Crude steel Steel province Cities Cutback rate Pig iron Crude steel Steel Beijing unsettled 163 Jinan unsettled Tianjin 5% Zibo 5% Shijiazhuang 5% Jining unsettled 44 Tangshan 5% Dezhou 5% 519 Langfang unsettled 2766 Shandong Liaochen g unsettled 124 Baoding unsettled 22 Binzhou unsettled Hebei Cangzhou unsettled Heze unsettled Hengshui unsettled 261 Linyi 5% Xingtai 5% Weifang 5% Handan 5% Zhengzh ou 5% 536 Zhangjiakou unsettled Kaifeng unsettled Taiyuan unsettled Anyang 5% Yangquan unsettled Henan Hebi unsettled Shanxi Changzhi 5% Xinxiang unsettled 36 Jincheng 5% Jiaozuo unsettled 28 Linfen 5% Puyang unsettled 24 Jiangsu Xuzhou 3% Anhui Anhui 3% Shaanxi Shaanxi 5% Steelmakers in the north has been cutting production during 15 Nov Mar 18, which will cause the 25-3 mln tons of steel production decrement ( mln tons per day). (Note: white forms above are 2+26 cities initiated in the policy, and grey ones are added thereafter.)

34 Outlook for China Steel Market Forecast on China Crude Steel Output Forecast on China Steel Import and Export tons Crude Steel Crude Steel gowth% Steel Steel growth% % tons Imports Exports Net.Exports Net. Exports e 218e 219e 22e e 218e 219e 22e Forecast on China Apparent Consumption of Crude Steel 12 1 tons Crude Steel Steel % 3 Crude Steel gowth% Steel growth% e 218e 219e 22e Source : NBSC,China Customs, SteelHome 1 mln tons e 218e 219e 22e Crude Steel Production Steel Production Steel Imports Steel Exports Crude Steel Consumption Steel Consumption

35 Outlook for China Steel Market II Outlook on China Steel Market 4.Global iron ore market: oversupplied China iron ore output in Jan-Oct 217 totaled 1,81.68 mln tons, up 6%; imports mln tons, up 6.3%. It is predicted that China s iron ore output in 217 will be 1.3 billion tons, up 1.5%; imports 1.8 billion tons, up 5.5%. Expansion in top four mines slows down. Iron ore output of four biggest mines in Q1-Q3 217 added mln tons, up 2.4%. Iron ore addition in the world will be around 8 mln tons in 217 and 35 mln tons in 218. Annual China s iron ore output will be 1.3 billion tons in 218 and billion tons in ; annual iron ore imports in the country will be 1.1 billion tons in 218, 1.8 billion tons in Price forecast for 218: China s common HR steel products will be running in the range of RMB/t; iron ore import price delivered to China will be 6-9 dollars/t (avg. 7 dollars/t), CIF.

36 Outlook for China Steel Market Forecast on China Pig Iron Production in Forecast on China Crude Iron Ore Output in tons Production Growth,% growth % tons Output Growth,% growth % e 218e 219e 22e e 218e 219e 22e Forecast on China Iron Ore Import in tons Import Growth,% growth % mln tons e 218e 219e 22e Pig iron Production Domestic iron ore Output Iron ore Imports e 218e 219e 22e -5 Source : NBSC, China Customs, SteelHome

37 Outlook for China Steel Market Top Four Mines Production Expansion Slows down 1, tons Jan-Sep 217 Up/Down Up/Down % Up/Down % Up/Down % VALE Rio Tinto BHP FMG Top Anglo American Total Source : SteelHome It is forecast that in 218, Vale will at most add 15 mln tons of iron ore output; Rio Tinto will add 5 mln tons-6 mln tons of iron ore; BHP Billiton will add 6 mln tons-8 mln tons; FMG has no plan; Anglo American will add 1 mln tons; Atlas and Roy Hill will not have huge expansion. Then global iron ore increment in 218 will be 35 mln tons.

38 Outlook for China Steel Market index price (RMB/t) Rebar HRC e 449 ( 643 USD) 447 (647 USD) 3642 (587 USD) 3758 (66 USD) 3169 (519 USD) 334 (547 USD) 2285 (368 USD) 233 (376 USD) 2557 (388 USD) 2818 (427 USD) 3866 (585 USD) 3829 (58 USD) ( ) USD

39 Outlook for China Steel Market Avg price Unit e Iron Ore Import Price (USD/t) USD/t Domestic Iron Ore Price (RMB/t) RMB/t

40 Conclusions De-capacity of China steel industry has already worked: recovering in industry, enhanced concentration and improved profit. Manufacturing industry and infrastructure construction will be new rising drivers for China s steel demand. China s steel demand from property will trend down, and that from manufacturing industry will be steadily rising in the future. China steel industry will upgrade in the future. China s EAF steel output will increase greatly. Development of the industry will focus on meeting domestic demand. Forecast for steel: crude steel output to be 855 mln tons (218), 85 mln tons (219) and 85 mln tons (22); steel export to 75 mln tons (218-22); apparent consumption of crude steel to 79 mln tons (218), 785 mln tons (219) and 785 mln tons (22). Common HR steel products price in 218 will be RMB/t (53-68 US dollars/t). Forecast for iron ore: China s crude iron ore output to be 1.3 billion tons (218), 1.25 billion tons (219) and 1.25 billion tons (22); imports to 1.11 billion tons (218), 1.9 billion tons (219) and 1.7 billion tons (22). China s iron ore import price to run in the range of 6-9 dollars/t in 218, and average price at 7 dollars/t (CIF).

41 Thank you! English website Shanghai SteelHome E-Commerce Co., Ltd. Chinese Website : English Website : info@steelhome.cn Tel: 86) Chinese website