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China Metals Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: September 2009 Product Code: R302-8212 Description The Chinese steel market endured a roller-coaster ride in Q2 and Q3 as price volatility exacerbated anuncertain environment and aluminium demand remained poor. BMI’s latest China Metals Reportforecasts rapid growth from H209, although smaller and less-efficient steel mills and aluminium smeltersare likely to close as the metals industry consolidates.In H109, China produced 317.3mn tonnes of crude steel, up 3% year-on-year (y-o-y). Rebar and wire rodprices have picked up on improved demand from construction and real estate sectors, but flats havesuffered a sustained downturn. China exported 9.34mn tonnes of steel products worth US$10.17bn invalue, down by 65.3% and 59.7% y-o-y respectively. Imports in the period totalled 8.13mn tonnes andUS$9.26bn in value, down 1.8% and 18.8% y-o-y respectively. Growth was largely fuelled by indicationsof recovery in the domestic market. On a daily basis, the production rate was 1.63mn tonnes, down 1.2% month-on-month (m-o-m) but stillhigher than expected and beyond the level the government had wanted in order to stabilise markets.China Iron and Steel Association (CISA) has forecast steel output exceeding 500mn tonnes in 2009, aview shared by BMI which, on the basis of current statistics and broader economic trends, forecastsproduction at 509.1mn tonnes, up 2% y-o-y. Over-capacity and the speculative nature of the Chinesecommodity markets are the main challenges facing the Chinese metals industry. The fear is that everytime steel prices surge, output is increased, leading to a sudden drop in domestic prices. BMI believesthat the stimulus programme could also exacerbate the structural problems within the steel industry. Overcapacityis causing inventory build-up, with producers responding too quickly to market recovery. Over the medium term, BMI expects that scheduled new capacity could be delayed, while moves towardsconsolidation could lead to the closure of smaller steel mills. As a result, the recovery in steel productionwill be at lower annual growth rates than the 15-25% seen in recent years, with BMI forecasting growthof 10% in 2010 and in the 9.0-10.5% range in the following three years, totalling 676.2mn tonnes by2013, a 36% increase over 2008. During this time, BMI envisages the closure of smaller, less efficientmills and the opening of larger, more technologically advanced mills. Problems of over-capacity are also being felt in the aluminium sector, which by mid-2009 had failed tofeel any benefits from the government stimulus programme. However, producers have been morecautious about raising output. In the first seven months of 2009, Chinese primary aluminium productionfell 13.9% y-o-y to 6.64mn tonnes. On the basis of trends within the automotive and household appliance industries, BMI forecasts a 10.9%fall in aluminium output to 10.68mn tonnes. We expect consolidation within the Chinese aluminiumindustry as a result of the collapse in both domestic and export demand, leading to the closure of somesmaller smelters - representing 48% of capacity by January 2009. As such, annual growth will be moremodest than the 15-35% seen in previous years, coming in at 8-12% with output reaching 17.24mn tonnesby 2013, an increase of 32% over 2008. In the long term, the Chinese aluminium industry is expected tofocus more on the export market, with BMI expecting a decline in imports. However, export tax policies,which place a 15% duty on aluminium exports, are an obstacle to China’s ability to compete on the worldmarket. Table of Contents
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