China curbs to boost local steel firms' fortunes

The steel industry sees a major boost on the anvil with China introducing a new licence system effective from May 20, 2007 to contain exports of the metal it needs the most for development of its infrastructure.

Industry sources said the impact of the measure would lift prices across the world and India would be as a major beneficiary. China happens to be the largest single market and the strongest growth area in the world. Last year, it's exports grew 109 per cent to 43 million tonne of steel, almost equal to India's total production. China produces 350 million tonne of steel, nearly one-third of the global production.

The Chinese measure, announced today, would cover 83 steel products, including rebars, hot rolled (HR) plates, narrow strips, which together account for 50 per cent of its steel exports. Majority of cold rolled (CR), galvanised products and all pipes have been exempted from the new export licence system.

Sources said as of now it was just a licence but this could translate to a quota regime, as the Chinese government is determined to check the trade imbalances.

Sources said the export licence system would bring down prices in China, which would have an immediate panic in the global market as Chinese exporters would rush for maximum contracts before May 20.

But, there will be a supply shortage in the long run in the global market which might bring an opportunity for Indian steel makers. However, the extent of the benefit might not be big as the country did not have capacity to jack up its exports dramatically, they added. Last year, India exported nearly 4 million tonne.

Earlier this year, China announced a list of steel makers to be shut down in 10 provinces/municipalities by a specified date.

According to Chinese reports, iron and steel making capacity of 39.86 million tonne and 41.67 million tonne, would be closed down over the next five years, with 22.55 million tonne and 24.23 million tonne to be closed down by the end of this year.

Industry sources pointed out that this could help contain the oversupply situation in the domestic market while making operations more efficient.

In a nationwide context, China has set a target of eliminating outdated iron-making capacity and steel making capacity of 30 million tonne and 35 million tonne by the end of 2007 and eventually 100 million tonne and 55 million tonne by 2010.

Leading information service provider, World Steel Dynamics, in its forecast at the beginning of the year had pegged the hot rolled band to be in the range $600-$725 per tonne, and one of the factors influencing the forecast was tapering of exports from China.

If the export licence system finally curbs exports from China, then the steel industry is headed for record prices, as has been predicted by the some of the largest steel makers across the world.