The Explosion Of Iron Ore Prices Should Take Control Of Steel Production Capacity.

Faced with the explosion of iron ore prices, a considerable number of experts in the domestic steel industry believe that the most effective way to curb it is to control steel production capacity and actively open up overseas mines.

Development Research Center of the State Council

Yang Jianlong, director of the research department of the Ministry of economic research, told reporters, "if China's iron and steel find a way out, on the one hand is to control the expansion of supply capacity, adjust the pattern of market supply and demand; on the other hand, continue to increase the market control level of leading enterprises."

He also stressed that in terms of technological progress, enterprises should strive to form their own core brands and high-tech products, and cultivate new competitive advantages.

However, the reality is: the capacity control effect is not good, and the import of iron ore is increasing year by year.

According to the latest figures released by the General Administration of Customs in July 22nd, China's iron ore imports increased by 40% to 37 million 790 thousand tons in June. Imports in the first half of the year amounted to 2.3004 million tons, up 22% from the same period last year, higher than the 17% increase of last year.

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"Control capacity" came from China's first "iron and steel industry development policy" in 2005.

After the long iron ore negotiations and record prices in 2008, people faced the grim reality again, because the control over domestic steel production capacity was not enough, and almost all of the domestic steel enterprises today were repeatedly controlled by raw materials.

By July 20th this year, the iron and steel industry policy had been released for three years, but the domestic steel enterprises obviously failed to hand over the satisfactory answer in terms of capacity control.

At the beginning of the policy, the planned production capacity was controlled at 3 billion tons.

Six months later, China's iron and steel industry reached a capacity of 4 billion tons, of which the backward steel production capacity was about 80 million tons, and by 2008, it had exceeded 5 million tons.

Inadvertently, China ended the history of net import steel and became the largest importer of iron ore and iron and steel production.

Many industry insiders believe that it is China.

The strong momentum of development provides a continuous possibility for the huge steel demand in the downstream market.

"China's annual steel consumption has surged from 3.59 billion tons in 2005 to 4.44 billion tons in 2007, and this year it is expected to reach 490 million to 5 billion tons," Hu Kai, an analyst with joint metal network and iron ore, told reporters.

With the rapid expansion of China's steel production capacity, international iron ore prices soared: between 2004 and 2007, the total increase was 165%.

The increase in 2008 was 65%-96%.

Being subjected to others, its taste is bitter.

Therefore, Luo Bingsheng, executive vice president of the China Iron and Steel Association repeatedly stressed, "only by controlling the total volume of steel production can we reverse the global supply and demand relationship."

　　探由

In fact, in the three years since the advent of industrial policies, the relevant departments have concentrated on eliminating backward production capacity and controlling new projects.

"The state said to eliminate the blast furnace less than 300 cubic meters, the local economic and Trade Commission and the development and Reform Commission can approve the replacement of 1 large blast furnaces with 1000 cubic meters by 3 small blast furnaces, and the total output will not drop or rise."

An industry insider told reporters that many small steel enterprises have "countermeasures": in order to avoid being eliminated, upgrading or upgrading the production equipment that was originally eliminated, or replacing the old with new ones.

This has led many industry experts to hold a conservative attitude towards eliminating backward production capacity and restraining iron and steel production capacity.

On the other hand, since 2006, the Chinese government put the steel industry as an overcapacity industry and explicitly approved the new iron and steel projects, such as Wugang, Baosteel's Fangchenggang and Zhanjiang port tens of millions of tons of iron and steel projects, due to bitter paper and so on, the project was delayed.

In the dispute over the elimination of the first and last new projects, many small and medium-sized steel enterprises have been actively occupied by the market, enjoying the most profitable increase in the steel industry.

But the control of production capacity is far from simple as originally conceived.

"My steel" deputy chief Jia Liang group analyzed in an interview with reporters, "why can't domestic steel production capacity be controlled?"

It is because of market demand that the production of iron and steel is profitable.

Sinosteel statistics shows that in 2006, China's iron and steel industry achieved a profit of 169 billion 950 million yuan, an increase of 39 billion 758 million yuan compared to 2005, and a profit of 190 billion yuan, an increase of 45% in 2007, the highest record in history.

In July 14th this year, a report of the national development and Reform Commission also showed that in the 1-5 month of this year, the steel industry realized a profit of 142 billion 600 million yuan, up 50.8% from the same period last year.

Hu Kaiyi told reporters, "steel prices from last year up 500 US dollars, completely exceeded the iron ore of 50 dollars, coke $200 of the cost increase; in addition to the current domestic and foreign steel market price difference has reached 200-300 dollars, domestic manufacturers production, export power does not decrease."

Another unnamed steel industry said, "in addition to industry profit factors, it is very important that there is a conflict between the unified layout of the state and a single vision of a region."

Because the steel industry has the characteristics of heavy industry and capital intensive, it can play a huge supporting role in local GDP, taxation and employment. The owners of many steel enterprises are local SASAC.

Therefore, in the process of playing with the market of the existing interest subjects, it is "unexpected" that policies are blocked and "brakes" are not effective.

　　改變

Internal and external incentives, steel production capacity seems to always "side control side expansion" wandering.

In the 2009 fiscal year, iron ore negotiations will come again. Many people concerned about the development of iron and steel industry are most concerned about whether China's relevant departments and enterprises have the determination and whether they can effectively control production capacity in a short time.

Regarding this, Bai Fang, director of the Party Committee Propaganda Department of Wuhan Iron and Steel Group, suggested in the interview with reporters that "the key to the capacity control of China's iron and steel industry lies in: first, according to the industrial policy; two, the local government should be based on the overall situation; three, the relevant departments should introduce policies such as tax issues, so as to promote cross regional restructuring."

It is a consensus in the industry to straighten out domestic steel production capacity through the restructuring and joint efforts.

As a matter of fact, after the debate and exploration of "going out first and then going on the horse, and then getting rid of it first", China's steel industry has begun to try to sort out this long entangled contradiction in a more flexible way.

In the process of integration of Guangdong iron and Steel Group and the South steel industry not long ago, the "elimination of backward production capacity and the orderly integration of new projects" finally made substantial breakthroughs.

When Baosteel annexed and reorganized Shaoguan Steel and Guangzhou Iron and Steel Co., Guangzhou Iron and steel group should eliminate all ironmaking, steelmaking and rolling production capacity. Shaoguan Iron and Steel Group will carry out technological pformation, eliminate backward blast furnaces and small converters, and carry out structural adjustment and industrial optimization and upgrading.

Combined with the construction of Zhanjiang and Fangchenggang iron and steel projects, Guangdong and Guangxi two provinces and autonomous regions need to eliminate backward production capacity of 1000 tons in the provinces.

The two are mutually preconditions, which are known by the industry as "addition and subtraction together", so as to achieve "win-win" in eliminating backward and new products.

In addition, many people in the industry have been looking forward to achieving a virtuous circle through pparent means of marketization.

"The most fundamental factor is the speed of China's economic growth.

In the past half a year, the state has been cooling down slowly through bank interest rates and macroeconomic regulation. Next year, there will be more obvious results.

Hu Kai told reporters, "once the demand for steel in the downstream is reduced, the pmission to the intermediate production link will cause some enterprises to be unable to bear the pain of rising costs and be eliminated, and the production capacity will be controlled naturally, so as to further improve the passive situation of our iron ore imports."