China steel â€“_embracing_a_new_age_16_09_12_13_19 (1)

| Global Research | 22:30 GMT 16 September 2012 |

China steel – Embracing a new age

Highlights

China‟s steel industry will undergo structural change over the next decade

– demand from the manufacturing sector is likely to increase rapidly, taking

share from the construction sector, the main driver of steel demand in the last

decade. Steel mills should act now to review their operations and restructure to

improve profitability.

Our model shows that China‟s steel consumption will continue to grow until 2025,

five years beyond the market consensus of 2020. Current steel capacity is

insufficient to support long-term demand. Hence, we expect further capacity

expansion in China.

New investments should move away from the currently dominant basic

oxygen furnace (BOF), which uses iron ore as its main feedstock, towards the

electric arc furnace (EAF), which uses scrap, is cheaper and takes less time to

build.

Over the next decade, southern and western China will likely see

increased steelmaking capacity. Northern China, which currently has the

largest capacity, will have limited room to grow. Steel mills will be able to

improve profitability by expanding in the south and the west. We expect long-

term capacity utilisation to stay close to 90%.

China‟s iron ore imports are unlikely to peak until 2025, as declining domestic ore

grades will lead to a higher dependence on imports, providing long-term support

to prices. Forward prices do not accurately reflect such demand, in our view.

Judy H Zhu, +86 21 6168 5016Judy-Hui.Zh u @sc.com

Koun-Ken Lee, +65 6596 8256KounKen.Lee@s c .com

Wei Ouyang, +852 3983 8519Wei. O u y an g @sc.com

SCout is Standard Chartered‟s

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Original ideas on Universal and

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Important disclosures can be found in the Disclosures AppendixAll rights reserved. Standard Chartered Bank 2012 research.standardchartered.com

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Table of contents

Summary 3

Hedging and trade recommendations 5

Section I – Steel consumption to grow for another 13 years 6

Section II – Positioning for an evolving demand landscape 14

Section III – Inevitable restructuring of the steel industry 23

Section IV – Steel growth provides long-term support for iron ore 28

Appendix I: The process of steelmaking and finishing 32

Appendix II: World’s top steel producers in 2010 33

References 34

16 September 2012 2


We expect the manufacturing sector to become a more important steel

consumer in the long term

Our model suggests that China’s steel consumption will not peak

until 2025, five years later than market consensus

Current steel capacity is insufficient to support long-term demand; we

support further selective expansion

SummaryNow is the time to review and restructureChina‟s steel market will change structurally over the next decade. In our view, the

current production infrastructure means that China‟s mills are not positioned to

capture the best returns. Construction demand, while still dominant, will see its share

decline from 2014. Manufacturing-sector demand will increase rapidly. Scrap

steel availability should improve as the economy matures. Thus, new mill

investments are likely to move away from basic oxygen furnaces (BOF) towards

electric arc furnaces (EAF), following the path taken by steel mills in developed

economies.

Following a well-trodden pathWe believe investment decisions today should incorporate our view that

Chinese steel demand growth will continue up to 2025 – a good five years beyond

the general market consensus of 2020 (Figure 1). We have analysed the change in

consumption patterns of large developed and developing economies, referring to

some data going as far back as 1900. The reasonably high correlations between our

regression model and the data sets suggest that steel consumption in large

countries over the course of their development – specifically, the relationship

between per-capita steel consumption and per-capita GDP in real terms – follows a

similar trend.

We are confident that utilisation rates will remain highAnother major change in China‟s steel manufacturing landscape over the next decade

is the rebalancing of capacity, currently concentrated in the north. This shift will

be driven primarily by government incentives, and mills will be able to improve

profitability by expanding in the south and the west. We acknowledge that China‟s

current steel capacity exceeds domestic demand, but our view of long-term demand

growth supports further selective expansion. Our analysis shows that steel

capacity utilisation will remain high, averaging close to 90% over the next decade.

Hence, while we recognise that the current outlook for China‟s steel industry is

pessimistic, we believe this is

temporary and that demand growth will outpace supply growth from 2015.

Figure 1: The peak of China’s steel consumption

1970-2030

0.60 900

Figure 2: The peak of China’s iron ore demand and import

mt, 2008-26

1,100

0.50

0.40

0.30

0.20

0.10

0.00

Steel consumption per capita,

tonne Total steel consumption, million tonnes

(RHS)

Our forecasts

800

700

600

500

400

300

200

100

0

1,000

900

800

700

600

500

400

300

Demand, Fe content

Import, total weight

1970 1976 1982 1988 1994 2000 2006 2012 2018 2024 2030

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Sources: WSA, IMF, Standard Chartered Research Source: Standard Chartered Research

16 September 2012 3


China’s iron ore imports will peak in2025, providing long-term support

to prices

Forward prices for iron ore do not reflect China’s long-term demandWe remain long-term iron ore bulls – underpinned by demand in China. We expect

China‟s iron ore imports (by weight) to peak only in 2025 (Figure 2). We

have lowered our 2012-15 iron ore price forecasts (62% iron content, on a cost and

freight basis at China‟s Tianjin port) as follows: 2012 to USD 127/tonne (t) from

USD 143/t,

2013 to USD 135/t from USD 182/t, 2014 to USD 125/t from USD 180/t, and 2015 to

USD 115/t from USD 133/t. However, our long-term price forecasts are unchanged,

supported by escalating costs. We believe that forward prices, which are quoted in a

range of USD 90-94/t for delivery throughout 2015, do not yet fully factor in long-term

demand from China.

16 September 2012 4


We see an upward bias to iron ore price risks in Q4

Hedging and trade recommendationsFigure 3 shows our price forecasts for iron ore with 62% iron content, on a cost and

freight basis at Tianjin port. An arithmetic average of prices is traded on the

Singapore Exchange (SGX). In our latest report on iron ore (On the Gro u n d,

24 A u g ust 2 0 1 2, ‘ Iron o r e – C a st-ir o n proof of sl o w d em a n d ’ ), we lowered our

Q3-2012 price forecast (period average) to USD 110/t from USD 130/t to reflect

a lower base in Q2 and our concerns about seasonal demand weakness. Our Q4

price forecast is USD 115/t.

Between 5-11 September, iron ore prices (spot and swaps) rebounded by c.20% on

expectations that China‟s economic growth might stabilise (rather than slow further)

after Beijing approved new infrastructure projects. Although near-term steel demand

has not improved, steel mills in China are likely to step up buying going into Q4, with

steel output gradually ramping up in response to the seasonal improvement in

demand. We also expect positive developments in the global economy in the latter

part of H2 to provide upward momentum to iron ore prices. By the end of October, we

expect prices to rebound to USD 120/t.

Trade recommendationsProducers

The recent price rebound has provided some relief to producers at the high end of

the cost curve, but current levels are still insufficient to enable all producers

(particularly those in China with cash costs at USD 120/t) to be profitable. We expect

China‟s iron ore demand to improve substantially from end-September, when

steel mills‟ maintenance periods will end and they will ramp up production.

However, iron ore demand is unlikely to surge for the remainder of this year, as we

expect only a moderate recovery in China‟s economy/steel demand in Q4. We

recommend selling in small volumes by targeting USD 120/t by the end of October.

Consumers

Our supply/demand balance forecasts for the seaborne iron ore market suggest that

supply will remain tight this year, although the deficit will narrow as new

supply exceeds new demand. We recommend that consumers buy forwards –

namely October, November and December 2012 swaps – for delivery in Q4.

These swaps are currently traded at USD 97/t, 16% below our Q4 forecast

(period average). Further ahead, we recommend buying 2013 swaps that are

traded at USD 99-101/t from January to December, 26% below our 2013 forecast.

Figure 3: Our iron ore price forecasts

USD/tonne Q2-2012F Q3-2012F Q4-2012F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2026F

New 140 110 115 127 135 125 115 113 114 120 121 128 122 124

Old 150 130 160 143 182 180 133 113 114 120 121 128 122 124

*62% Fe content, cost and freight at China’s Tianjin port; Source: Standard Chartered Research

16 September 2012 5

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Section I – Steel consumption to grow for another 13 years China’s steel consumption is likely to peak at 823mt in 2025

Steel consumption per capita should reach 567kg in 2025

We expect steel consumption to drop immediately after peaking

Our model suggests that China’s steel consumption will peak at

823mt in 2025; consumption per capita should reach 567kg

The dragon livesOver the last five decades, China‟s steel industry was part of the North East Asian

miracle: its steel consumption surged from 3% of the world‟s total in the late 1960s to

42% in 2010, while its steel production rose from 3% to 44% of the global total over

the same period (Figure 4). The highest growth in steel consumption and production

has come in the last decade, when the country‟s annual GDP growth

stabilised above 8% and urban growth created strong demand for the

infrastructure development in rural areas. In the late 1990s, China surpassed the US

as the world‟s largest steel consumer. Its consumption took off in 2000, and

impressive growth has continued for a decade (Figure 5).

While no market can grow forever, and the steel sector is particularly cyclical

because it is closely correlated with the economic cycle, our research suggests that

China‟s steel consumption will not peak until 2025. This is more bullish than many in

the market expect. We use per-capita consumption as a benchmark to help forecast

the peak. Our model suggests that China‟s per-capita consumption will reach 567kg

in 2025. Total consumption will peak at 823 million tonnes (mt) in 2025, and will fall

immediately thereafter. We provide long-term forecasts to 2030 in Figure 14.

Since our model uses per-capita GDP as an input for our steel forecasts,

these forecasts reflect the changing contribution from infrastructure build-out,

as our economists‟ GDP forecasts take into account the contribution from

investment (Figure 13). We expect investment to contribute 3.8 percentage

points (ppt) to

China‟s real GDP growth in 2016, down from 5.3ppt in 2011.

Figure 4: China’s position in the global steel market

% of global total, 1967-2010Figure 5: Steel consumption in major countries

mt, 1967-2010

50

45

40

35

30

25

20 Urban population, million persons (RHS)

15

Consumption

Production 800

700

600

500

400

300

700

600

500

400

300

200Korea Japan

China

10

5

01967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

200

100

0

100

0

Germany US

1967 1972 1977 1982 1987 1992 1997 2002 2007

Sources: WSA, CEIC, Standard Chartered Research Sources: WSA, Standard Chartered Research

16 September 2012 6

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Our model uses data from comparable economies to run

regression analysis and provide paths for per-capita steel

consumption

GDP has a profound relation with steel consumption

Peak consumption is more than a decade awayFrom 1970 to 2000, China‟s steel consumption rose by approximately 3.9mt per year.

This growth accelerated from 2001 on the back of aggressive investment

in infrastructure and real estate. Since then, the trend has shifted to growth

of approximately 44.2mt per year. It is natural to question how long this level of

growth can last. In this section, we attempt to provide an answer.

Our key assumptions for the model

In the absence of reliable data on China‟s infrastructure, we look to other countries

for clues as to how China‟s steel consumption will evolve. We believe

that infrastructure projects were the main demand driver of steel demand

during the economic development stage in other countries, particularly those

with similar geological conditions to China (the US) and a low infrastructure base

(Japan).

Our key assumptions are:

1. The future path of China‟s per-capita steel consumption will track the trajectory

of major economies.

2. China‟s long-term real GDP growth will gradually trend down and stabilise at 4%

y/y towards 2030.

3. We use UN estimates for China‟s population. Population growth is forecast to

decelerate in the years leading up to 2030, reaching 1.46bn people by 2030.

GDP per capita is our forecasting measure

A particularly compelling metric is per-capita steel consumption plotted against real

GDP in US dollars per capita (see Figure 6; we use data from 1970, except for the

US, which is from 1900). We use 2010 as the base year to calculate real GDP. The

main reason why we link steel consumption to GDP is that GDP measures

an economy‟s output of final goods and services. For large economies such as

China (which overtook Japan in 2010 to become the world‟s second-largest

economy after the US in nominal GDP terms), construction and manufacturing

contribute heavily to

economic output. Hence, GDP is related to steel consumption.

Figure 6: Steel consumption per capita as a function of

GDP per capita

Germany Japan US France UK China India Korea Malaysia1.2

1.0Base case

0.8

Figure 7: We use this to derive our per-capita steel

consumption paths for various scenarios

China0.9

0.8

0.7

0.6Bull case

0.50.6

0.4

0.2

0.00 10 20 30 40 50

GDP per capita, '000 USD

0.4

0.3

0.2

0.1

0

Base case

Bear case

0 5 10 15 20GDP per capita, '000 USD

Sources: IMF, UN, WSA, Standard Chartered Research Sources: IMF, UN, WSA, Standard Chartered Research

16 September 2012 7


GDP per capita is a proxy for a country‟s standard of living (it is not a measure of

living standards or personal income). A higher standard of living requires

development of infrastructure and manufactured products. This includes building new

houses, roads, railways, airports and bridges, as well as producing cars, white goods

and more pipelines for energy transmission. All of these are steel-intensive.

We did not use median household income to measure steel consumption per capita

because (1) median household income is more a reflection of consumers‟ wealth, but

does not necessarily correlate to consumption of steel-intensive products; and

(2) median household income is a politically sensitive indicator that does not always

positively correlate with GDP per capita. During recessions, median household

income declines, while per-capita GDP continues to rise. We observed this in the US

when the dot-com bubble burst in the early 2000s and when the global financial crisis

began in 2008.

Our analysis shows that fixed asset investment (FAI) – which is commonly used to

represent construction and is widely viewed by the market as closely correlated with

steel consumption – in fact has a low correlation with steel, as FAI is a

broad category and includes much investment that is unrelated to steel (such as

investment

in land and technology).

Steel consumption per capita shows a linear increase as GDP per capita rises from a low base, before

peaking

China has passed its fastest growth period and entered a slower growth

phase

The relationship between steel consumption and GDP in major

countries As economies develop, we see a steep linear increase in

per-capita steel consumption as per-capita GDP rises from a low base. This is

because infrastructure build-out contributes heavily to economic output

(measured by GDP) during this development stage. When an economy matures,

which is usually accompanied by

the completion of infrastructure projects, its dependence on construction declines

and it starts to rely more on domestic consumption. The latter requires more

manufactured goods, which also consume steel, but in the form of higher-

value- added steel products.

Figure 6 shows that increases in per-capita steel consumption are particularly steep

when per-capita GDP rises towards USD 5,000. Beyond the per-capita GDP level of

approximately USD 5,000-10,000, the uptrend in per-capita steel consumption begins

to peak. After this stage, scenarios differ among countries. The two cases that stand

out are Japan and South Korea. Consumption has stayed high in both countries, with

Japan‟s hitting a second peak at per-capita GDP of around USD 30,000, while South

Korea‟s appears to be peaking at a per-capita GDP level of around USD 18,000.

China’s per-capita steel consumption will become inelastic to GDP China‟s per-capita steel consumption has risen particularly fast in the past 10 years,

with infrastructure build-out and property providing the major momentum (in Section

II of this report, we provide a long-term analysis of steel consumption by

major sectors in China). Although we expect infrastructure to contribute less to GDP

growth over the long term, and the contribution from domestic consumption to

gradually increase, infrastructure will remain one of the most important

economic growth drivers. Our view on China‟s steel consumption incorporates this

expected structural shift in the economy.

The trajectory for China‟s per-capita steel consumption derived from our regression

analysis of various countries (Figure 7) shows that 2012 consumption, at 487kg, is

already close to the peak of 569kg we forecast between 2022 and 2023. Our analysis

16 September 2012 8


also suggests that between 2012 and 2020, per-capita consumption will increase by

16%. But between 2020 and 2025, there will be virtually no growth in per-capita use,

while total steel consumption (as shown in Figure 12) will continue to rise on the back

of population growth. The flattening-out of growth in per-capita consumption implies

that this indicator will have a looser relationship with per-capita GDP (also our

observation from other countries‟ histories) over the next decade. It further

implies that going forward, the contribution of infrastructure will be less important

than during the initial acceleration phase.

We believe the reasons for this are as follows:

1. China has experienced oversupply and low utilisation of infrastructure because

of overdevelopment in the last 10 years. Thus, the pace of further development

should slow, with less aggressive spending on new projects.

2. In the last 10 years China‟s urban population has increased rapidly, from

less than 40% to 51% of the total population, generating huge

demand for infrastructure and manufactured goods. Urban population

growth should slow from here, contributing less to per-capita use of steel.

Development in Japan (Figures 8 and 9) and the US shows a similar pattern

In Japan, once the urban population reached 50% of the total (in 1968), the

pace of urbanisation slowed significantly (from 1969-1982). Per-capita steel

consumption peaked in the early

1970s, while urbanisation continued to trend up, albeit much more slowly. In the

US also, we observe that per-capita steel consumption does not

necessarily grow in line with urbanisation ad infinitum (Figure 10). In

China, we expect demand for infrastructure projects to slow in the next decade.

However, demand for manufactured goods should grow steadily despite the

slowdown in the pace

of urbanisation, as these goods have shorter lives.

Post-war reconstruction in Japan and Germany pushed up steel

demand

Japan and Germany show exceptionally high steel consumptionAs Figure 6 shows, when per-capita GDP was below USD 5,000, Japan and

Germany reported exceptionally high steel consumption per capita. In the 1950s and

1960s, both countries underwent reconstruction from a very low base after

World War II. Germany‟s consumption returned to average levels after

reconstruction, but Japan maintained momentum, exhibiting high ongoing per-

capita consumption as

per-capita GDP grew.

Figure 8: Japan’s steel intensity peaked when

urbanisation was still risingFigure 9: Japan’s urbanisation slowed significantly when

the urban population reached 50%

900

800

700

600

500

400

300

200

100

0

Urbanisation, % of 80 total population

(RHS) 70

60

50Steel consumption per capita, kg

40

30

20

10

0

900

800

700

600

500

400

300

200

100

0

Steel consumption per capita, kg

Growth of urbanisation, % y/y (RHS)

3.0

2.5

2.0

1.5

1.0

0.5

0.0

1950 1957 1964 1971 1978 1985 1992 1999 2006 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006

Sources: IMF, WSA, UN, Standard Chartered Research Sources: IMF, WSA, UN, Standard Chartered Research

16 September 2012 9


The history of steel consumption in Japan suggests that the country experienced a

double peak. The first was in 1973, when per-capita use reached 802kg. The

second was in 1990, when per-capita use reached a similar level after almost

20 years of volatility. We do not think Japan is a useful comparison for China (we

have not included it in the base-case scenario discussed later) because its

government implemented preferential policies to encourage the expansion of the

steel industry and exports of steel-related products after the war. Therefore, its post-

war steel consumption was not entirely related to domestic demand and was inflated

by exports.

When post-war construction was completed in the 1970s, Japan became a

major exporter of automotive products (very steel-intensive). As of 2010, the

automotive

sector accounted for 22% of the country‟s total steel consumption.

US steel history shows how steel consumption shifts at different

stages of development; this informs our analysis of China’s changing

steel market in Section II

US experience provides insight to complete the pictureOn the other side of the spectrum, we have seen the US peak and decline. US per-

capita consumption also reached double peaks at per-capita GDP of around

USD

30,000 (although the second peak was a little lower than the first). The US relied on

infrastructure investment in its early years of development and became a

consumption-driven economy later on.

The history of the US railway provides a useful example of steel-

intensive infrastructure investment: 7,000 miles were laid in 1880, 9,000 miles in

1881 and

11,000 miles in 1882. Railways were the nation‟s first „big business‟ in

the industrialisation period, and were almost the sole contributor to US

steel consumption. But today, construction accounts for only 42% of US steel

consumption (in comparison, auto and machinery-making account for 36%

of US steel consumption). US steel consumption data from 1900-2010 shows

that per-capita consumption first peaked at 528kg in 1968 and stayed around that

level until 1973.

When GDP per capita reached USD 45,000 in the 2000s, US steel consumption per

capita dropped quickly. When a country‟s urbanisation rate reaches 80% (the US hit

70% in the early 1960s and 80% in the 2000s), construction should start to account

for much less steel consumption, while the manufacturing sector (mainly household-

related consumption) should outperform. Our long-term forecasts for steel

applications in China (discussed in Section II of this report) draw on the experience of

industrialised countries, including the US, to assume long-term trends for changes in

steel use.

Figure 10: US steel intensity has an inverse relationship with urbanisation

550

500

450

Steel consumption per capita, kg 85

80

40075

350

300

250

200

150

70Urbanisation, % of total

65

100

601950 1957 1964 1971 1978 1985 1992 1999 2006

Sources: IMF, WSA, UN, Standard Chartered Research

16 September 2012 10


South Korea’s shipping industry pushes up steel consumption per

capita

We have provided three scenarios for China’s steel consumption per

capita

South Korea is excluded owing to its shipbuilding industryWe include South Korea in Figure 6, but have not included it in any of our

regressions (whereas other market analysis does). The country has the world‟s

highest per-capita use of steel, at 1,117kg in 2010. It reported peak per-capita use at

1,257kg in 2008 (the same year that it became the world‟s dominant shipbuilder, with

a 51% share of the global market). But in our view, Korea is not at all comparable

with China because: (1) growth in the industrial sector was the principal driver

of Korean economic development, and steel-intensive shipbuilding was a

key contributor (while China‟s shipbuilding industry has grown rapidly in the last

decade, it has contributed much less to the overall economy); And (2) Korea‟s

population is roughly only 4% of China‟s.

How does our model work?Based on our assumptions and data, we construct regressions for three scenarios.

The regressions are simple polynomial functions that are merely a way for us

to interpolate a path for steep per-capita consumption and not a tool for

extrapolating beyond per-capita GDP level of USD 50,000. Our base case uses

data for China, Malaysia, the US and Germany only, which can be found in Figure 7.

For our bear case, we omit Japan, Germany and Korea from the data set and rerun the regression (see Figure 7). For our bull case, we omit France, the UK, Korea

and the US. Goodness of fit (R2) for all cases ranges between 58% for the bear and

base cases and 79% for the bull case. These fits are reasonable and allow us to infer a per-capita

consumption level for a given per-capita GDP figure. The resulting regressions

in Figure 7 are intuitive and provide us with sensible forecasting scenarios. The bear

case reflects the path taken by the US from the 1970s to date, while the bull case is

more in line with that taken by Japan and Germany during the same period.

We plot these regression fits over China‟s historical per-capita steel consumption

data and project forward out to 2030. The next steps involve translating these

estimates into consumption numbers. This requires two further estimates,

namely population and GDP per capita out to 2030; these estimates are the

same in all scenarios. For population, we use UN estimates, as shown in

Figure 11. China‟s population growth is forecast to decelerate in the years leading

up to 2030, reaching

1.46bn people. Based on our forecasts, China‟s per-capita GDP will likely increase

by about 6-7% y/y until 2019, with growth then to slowing to 4-5% y/y. China‟s per-

capita GDP currently stands at approximately USD 5,100 and we expect it to reach

USD 13,153 in 2030.

Figure 11: Our estimates of China’s population and GDP Figure 12: We use these to forecast China’s steel

consumption out to 2030 (mt)

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

-

Population, mn (RHS)

GDP bn USD, real, base year 2010

1,500

1,400

1,300

1,200

1,100

1,000

900

800

1,000

900

800

700

600

500

400

300

200

100

0

BullBase

Bear

Forecast variation

1971 1981 1991 2001 2011 2021 2000 2005 2010 2015 2020 2025 2030

Sources: IMF, UN, Standard Chartered Research Sources: IMF, UN, WSA, Standard Chartered Research


We derive total steel consumption forecasts from per-capita steel

consumption as well as GDP and population forecasts

Applying all of these estimates to our per-capita steel consumption scenarios,

we arrive at steel consumption forecasts (Figure 12). Our model suggests that in

the base-case and bull-case scenarios, China‟s steel consumption will continue to

grow in the next 13 years until 2025, although growth will likely begin to decelerate

after

2013, roughly when we expect China‟s „super-cycle‟ to begin to slow down.

In our base-case scenario, the peak year is 2025, with consumption at 823mt. By

2030, this falls only slightly (1.7%) to 809mt. Total steel consumption increases by

155mt between 2013 and 2025 (+23%). Our bull case also has a peak of 2025, but at

a higher consumption level of 874mt, which suggests an aggregate increase

of

206mt (31%) between 2013 and 2015. In 2030, our bull case suggests that

total consumption will be 856mt, a 2.1% decline from the peak.

In our bear case, consumption peaks at 727mt in 2017. Beyond the peak, we see a

gradual decline to 608mt by 2030 (-16.4%). A trigger that could set China on

this bear-case path would be an earlier-than-expected peak in urbanisation, but

we believe the chance of this is minimal.

The variation between our bear to bull cases for steel consumption is approximately

248mt in 2030. We use this variation to approximate our base model error in 2030,

which we calculate to be ± 15%.

The risk to our view would be a more significant deceleration owing to policy change

in China that takes per-capita consumption on a different path, as seen in other major

industrial countries.

Figure 13: China’s GDP composition

Real growth contributions, ppt of real growth

16

14 Net exports

12Investment

10

8

6

4

2

0

-2

-4

Government

Consumption

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Sources: CEIC, Standard Chartered Research


Some other findingsOur steel forecasts also reveal two interesting findings.

1. China‟s annual steel consumption growth has already peaked and will slow

to less than 1% from 2021 until consumption peaks in 2025. But even with

flatter future growth than the past decade, the additional consumption in volume

terms remains substantial due to a high base. For example, total steel

consumption will increase by 155mt between 2013 and 2025 (+23%). Between

2014 and 2025, our base-case scenario suggests average growth of 1.3%

y/y. There will be virtually no increase in steel consumption in the peak year of

2025. As shown in Figure 14, total steel consumption rises by 6.0% y/y in

2012, in line with our long-standing view on China‟s steel consumption this

year. In a previous report ( Com m odity Outl o ok, 22 N o v e mb e r 201 1 , ‘ Ste e l

– C h in a ’ s 2 012 d e mand for e cas t ’ ), we adopted a bottom-up method to

forecast consumption in 2012 but achieved the same result. We are

comfortable that steel growth in 2013 will remain at 6% y/y, even if GDP

growth is below our current forecast, as we believe that steel-intensive

infrastructure investment is the only efficient way to stabilise economic growth

in the short term.

2. Steel consumption is likely to decline on a y/y basis when GDP growth is below

5.0%. The post-peak years could be painful for steel mills, with demand

shrinking rapidly.

Figure 14: Our base-case forecasts for China’s steel consumption between now and 2030

2009E 2010E 2011E 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F

Total steel consumption, mt 525 587 630 668 708 729 748 765 780 792 802

Total steel consumption, % y/y 15.2 11.7 7.4 6.0 6.0 2.9 2.7 2.3 1.9 1.6 1.3

Steel consumption per capita, kg 390 433 462 487 513 525 536 545 553 559 563

GDP, % y/y 9.2 10.4 9.2 8.1 8.7 7.5 7.5 7.4 7.0 6.5 6.5

2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F

Total steel consumption, mt 811 816 820 822 823 823 821 819 816 812 809

Total steel consumption, % y/y 1.0 0.6 0.5 0.3 0.2 0.0 -0.2 -0.3 -0.4 -0.4 -0.4

Steel consumption per capita, kg 566 568 569 569 568 567 565 562 559 556 553

GDP, % y/y 6.0 5.5 5.5 5.0 5.0 5.0 4.5 4.5 4.0 4.0 4.0

Sources: WSA, IMF, UN, CEIC, Standard Chartered Research


https://research.standardchartered.com/configuration/ROW%20Documents/Steel%20%C3%A2%E2%82%AC%E2%80%9C%20China%C3%A2%E2%82%AC%E2%84%A2s%202012%20demand%20forecast%20_22_11_11_03_32.pdf




Section II – Positioning for an evolving demand landscape We expect China’s steel consumption to be less dependent on the construction sector

The economy’s structural evolution should lead to more demand for high-end steel products

Steel mills need to start making long-term plans; we believe electric steelmaking is the future

Steel mills have to plan for the structural shift in steel use and new

growth momentum

Time for changeChina, as the world‟s largest developing economy, remains heavily reliant on

the construction sector to drive its steel demand. This has been the case for

over a decade, but the next 10 years might witness structural change in market

applications for steel, given the increasing importance of the manufacturing

sector that will be driven by domestic consumption. While a small group of steel

mills in China have realised that it is time to change, most are not yet prepared

(either strategically or technologically) to produce more high-end products.

In this section, we provide our long-term forecast for steel applications in China up to

2026. While the construction sector remains important, accounting for 49.1% of the

country‟s steel consumption in 2026, its market share should decline from a peak of

56.6% in 2013-14 to make way for a growing manufacturing-sector contribution.

We believe it is critical for steel mills in China to strategically plan their product mix

and future location to accommodate the gradual shift in steel applications in the next

10 years. In our view, they should act as soon as possible because developing new

technology takes time.

We believe building mini-mills in potential consumption areas using EAFs is

an economical way of expanding long-term steel output and is easier than acquiring

iron ore mines overseas. We have provided analysis on the economics of operating

EAFs and their strengths relative to BOFs (see sub-section “Steel mills need to

plan their future carefully”). Over the long term, we think mills will need to develop

low-cost and highly efficient operations to maximise profitability given the structural

shift in steel applications, and that they will need to tailor their expansion to the

increasing

contribution to demand from hinterland provinces.

Figure 15: China’s market applications for steel

% of total consumption, as of 2011Figure 16: Length of railways in major countries

Metres per thousand persons

Construction Machinery and equipment

RailwayAutomotive

Others Home appliance

Metal fittings making Ship building

Electricity Petrochemical

Container

0 10 20 30 40 50 60

China in 2010

Korea in 2006

Japan in 2006

Germay in 2008

US in 2007

0 100 200 300 400 500 600 700 800

Source: Standard Chartered Research Sources: CEIC, Standard Chartered Research

Consumption, mt

Construction 273 314 345 375 401 413 423 431 436 440 441 440 436 433 426 420 412 403

Automotive 37 47 48 51 56 59 62 66 70 74 77 81 84 88 91 94 97 100

Metal fittings making 15 14 13 13 13 14 14 14 14 14 14 14 15 15 15 15 15 15

Ship building 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9

Container 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 3

Others 37 35 39 39 39 40 39 37 36 34 32 30 29 28 26 25 24 22

Total 525 587 630 668 708 729 748 765 780 792 802 811 816 820 822 823 823 821

Consumption, % y/yConstruction 17.2 15.0 9.9 8.7 6.8 3.0 2.5 2.0 1.2 0.8 0.2 -0.2 -1.0 -0.7 -1.4 -1.5 -1.8 -2.3Machinery andequipment

Railway

5.3

79.8

4.8

16.3

5.7

-2.0

5.4

-2.0

5.2

3.0

3.0

1.0

3.0

1.0

3.5

1.0

3.5

1.0

3.5

0.0

4.0

0.0

4.0

0.0

4.0

0.0

3.0

0.0

3.0

0.0

3.0

0.0

3.0

0.0

3.0

0.0

Home appliance 10.0 20.0 12.1 1.4 10.0 7.0 7.0 7.0 7.0 5.0 5.0 5.0 5.0 4.0 4.0 4.0 4.0 4.0

Petrochemical 0.0 3.3 4.8 3.1 3.1 3.1 3.0 3.0 3.0 2.0 2.0 1.0 1.0 0.5 0.5 0.0 0.0 0.0

Electricity 20.0 16.7 14.3 12.5 12.5 10.0 8.0 8.0 7.0 7.0 6.0 6.0 3.0 2.0 2.0 1.0 0.0 0.0

Total 15.0 11.8 7.3 6.0 6.0 3.0 2.5 2.3 1.9 1.5 1.3 1.1 0.6 0.6 0.2 0.1 0.0 -0.2

Construction 51.6 53.2 54.5 56.2 56.6 56.6 56.5 56.3 55.9 55.6 55.0 54.2 53.4 52.7 52.0 51.2 50.3 49.1

Automotive 7.1 8.1 7.7 7.6 7.9 8.1 8.4 8.6 9.0 9.3 9.6 10.0 10.4 10.7 11.1 11.5 11.8 12.2

Metal fittings making 2.7 2.4 2.1 1.9 1.9 1.9 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.9

Ship building 1.7 1.5 1.4 1.3 1.2 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1

Container 0.8 0.7 0.8 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4

16 September 2012

Source: St ndard Charte

red Re

search

15


Figure 17: Steel consumption and application in China – Our long-term forecasts

2009E 2010E 2011E 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F

Machinery andequipment

84 88 93 98 103 106 109 113 117 121 126 131 136 140 145 149 154 158

Railway 43 50 49 48 49 50 50 51 51 51 51 51 51 51 51 51 51 51

Home appliance 11 13 15 15 17 18 19 20 22 23 24 25 26 27 28 30 31 32

Petrochemical 6 6 7 7 7 7 7 8 8 8 8 8 8 8 8 8 8 8

Electricity 6 7 8 9 10 11 12 13 14 15 16 17 17 18 18 18 18 18

Automotive 49.1 27.0 2.1 6.3 9.0 6.0 6.0 6.0 6.0 5.0 5.0 5.0 4.0 4.0 4.0 3.0 3.0 3.0

Metal fittings making 0.0 -6.7 -7.1 0.0 2.0 2.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Ship building -10.0 0.0 0.0 0.0 -2.0 -2.0 -1.0 1.0 1.0 1.0 1.5 1.0 1.0 0.5 0.5 0.0 0.0 0.0

Container -33.3 0.0 10.0 -9.1 0.0 0.0 -5.0 -5.0 -5.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Others -14.0 -6.8 13.0 0.0 1.0 1.0 -3.0 -4.0 -4.0 -5.0 -5.0 -5.0 -5.0 -5.0 -5.0 -5.0 -5.0 -5.0

Contribution to total steel consumption, %

Machinery andequipment

15.9 15.3 15.1 14.7 14.6 14.6 14.6 14.8 15.0 15.3 15.7 16.2 16.7 17.1 17.6 18.2 18.7 19.3

Railway 8.3 8.8 7.9 7.2 7.0 6.8 6.7 6.7 6.6 6.5 6.4 6.3 6.3 6.3 6.3 6.3 6.3 6.3

Home appliance 2.1 2.4 2.1 2.2 2.3 2.4 2.5 2.6 2.8 2.9 3.0 3.1 3.2 3.3 3.5 3.6 3.7 3.9

Petrochemical 1.2 1 1.1 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Electricity 1.5 1.4 1.3 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 2.1 2.1 2.2 2.2 2.2 2.2

a


The construction sector is the largest steel consumer in China

today

We expect the manufacturing sector to play an increasingly important

role in long-term steel consumption

Steel applications in ChinaFigure 15 shows major steel applications in China. Construction contributes the most,

accounting for 54.5% of steel consumption in 2011. This sector consists of

real- estate projects (33%), infrastructure projects (13%) and others (8%).

Machinery and equipment-making is the second-largest consumer of steel,

accounting for 15.1% of total consumption in 2011. The automotives and

railway sectors are equally important, contributing 7.7% and 7.9% to total

consumption, respectively.

Although China has reported substantial growth in these industries in the last 10

years, per-capita use is low compared with developed economies. Taking the railway

system as an example, the length of China‟s railways was equivalent to 68

metres per

1,000 persons in 2010, or 6.8cm per capita; note that this is 70% higher than the

level in 1949. In comparison, the US had the longest railway length of 750 metres per

capita, followed by 510 metres in Germany, 184 metres in Japan and 72 metres

in South Korea (Figure 16). China has a long way to go in the coming years.

Our long-term forecast for steel applications in ChinaFigure 17 shows our long-term forecasts for steel demand among China‟s

major consuming sectors between 2012 and 2026. Our forecasts for each sector

take into account our economists‟ view that in the next 10 years, China‟s

economy will shift from a dependence on investment and exports to domestic

consumption. Figure 13 shows that investment will contribute only 3.8ppt to the

country‟s GDP growth in

2016, versus 8.2ppt in 2009.

As Figure 17 shows, the construction sector is likely to contribute less to overall steel

consumption between 2015 and 2026. Its contribution will remain very high until 2014

(at 56.6% of total steel consumption in 2014), but is likely to slow steadily from 2015

onwards it until it begins to decline on a y/y basis in 2020. We expect the

construction sector‟s steel consumption to grow 3.0% y/y in 2014, versus 6.8% y/y

in

2013. This is mainly because we expect the government‟s infrastructure investment

push to wane after 2013 as it opts for a long period of slower growth while seeking

new growth drivers.

Figure 18: US market applications for steel

% of total consumption, as of 2010Figure 19: Japan’s market applications for steel

% of total consumption, as of 2011

Construction

Automotive

Machinery and equipment

Energy

Other

Applicances

Container

National defence and homeland…

Steel dealers and others

Construction

Automotive

Shipbuilding and marine equipment

For further processing

Electrical machinery and equipment

Industrial machinery and equipment

Containers

Home and office appliances

Others0 5 10

15 20 25 30 35 40 450 5 10 15 20 25 30

Sources: AISI, Standard Chartered Research Sources: JISF, Standard Chartered Research



We expect the manufacturing sector (mainly machinery, automotive and

home appliances) to see steady long-term growth. In 2026, we expect the

construction sector to account for 49.1% of China‟s steel consumption; the

manufacturing sector (mainly consisting of machinery, auto and home appliance

manufacturers) will likely account for

35.4% (from 24.6% in 2012). Such a shift is in line with our observations of developed

economies, where the manufacturing sector usually has a large share. During

this

process, we expect manufacturers of flat steel products to see improving profitability.

Developed economies are reliant on the manufacturing sector

We advise steel mills in China to make long-term plans to adapt to

the structural shift in steel demand

Figures 18 and 19 show market applications for steel in the US and Japan.

Both countries are less dependent on construction than China, and more

dependent on automotive production. In 2010, the construction sector accounted

for 42% of US steel consumption, while automotive and machinery together

accounted for 36%. In Japan, construction is even less important. Only 23% of

Japan‟s steel demand came from this sector in 2011, but the whole

manufacturing sector, including machinery and automotive, accounted for a

substantial 50%.

Steel mills need to plan their future carefullyDue to growing demand from the manufacturing sector (including machinery,

automotive and home appliances), and the declining market share of construction in

the long term (Figure 21), we expect China to demand more high-value-added steel

products, such as alloys and cold rolled sheet, to support output expansion in

the manufacturing sector. This will require mills to start research and development

well ahead of time. In the very long term, we believe that mills should focus less on

producing long products that are mostly used in construction, although we expect this

structural shift in demand and output to take place gradually over the next 10 years.

Figure 20: High-end products generate higher gross margins for Baosteel and Wuhan Steel

Profit margin 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Baosteel

Cold-rolled coil, % 28 34 30 27 24 22 15 18 22 12Hot-rolled coil, % 33 39 43 38 28 24 16 13 16 11

Wuhan Steel

Cold-rolled coil, % 11 12 25 22 6 28 22 15 16 10

Hot-rolled coil, % NA NA 41 16 12 18 9 2 1 3Wire rod, % NA NA 5 7 6 NA NA NA NA NA

Sources: Company reports, Standard Chartered Research

Figure 21: Evolution of major steel consumers in China

% of total steel consumption, 2009-2026Construction Machinery and equipment Automotive Railway Metal fittings making Home appliance Ship building Petrochemical Container Electricity Others

100%

80%

60%

Figure 22: Output of concrete reinforcing bars

% of steel output

China in 2010

Korea in 2010

Japan in 2009

40% Germany in 2009

20%

0%

2009E2013F2017F

2021F 2025F

US in 2010

0 5 10 15 20 25

Source: Standard Chartered Research Sources: WSA, Standard Chartered Research



We use two leading steel mills‟ data to show how high-end products benefit

producers (Figure 20). Hot-rolled coil generated higher profit margins for Baosteel in

the years before 2007, but thus advantage quickly faded from 2008. This is

even clearer in Wuhan Steel‟s case. Between 2002 and 2011, its average profit

margin from production of cold-rolled coil was 17%, higher than its 13% profit

margin from production of hot-rolled coil and its 6% margin from wire rod.

Figures 22 and 23 show China‟s production of key steel products for construction use

compared with developed economies. China is the world‟s largest producer of

construction steel. Figure 24 shows major countries‟ production of railway track.

In the past decade, China has aggressively expanded its output not only of

long products, but also of flat products (Figure 25). From 1994 to 2010, while

rebar output rose approximately 9x, output of hot-rolled flat products surged

more than

16x. Interestingly, as of Q1-2012, plate and sheet accounted for 84% of China‟s

imports of finished steel products (Figure 26). The reason for this, we believe,

is that steelmaking and finishing technology in China are underdeveloped

and domestic demand for high-end products has to be met by imports. (For a

basic outline of steelmaking and finishing, please see Appendix I: The

process of

steelmaking and finishing.)

Figure 23: Output of wire rod

% of steel output

18

16

14

12

10

8

6

4

2

0

Figure 24: Output of railway track

% of steel output

2.01.81.61.41.21.00.80.60.40.2

0.0US in 2010 Germany in

2009Japan in 2009 Korea in 2010 China in 2010 US in 2010 Germany in

2009Japan in 2009 Korea in 2010 China in 2010

Sources: WSA, Standard Chartered Research Sources: WSA, Standard Chartered Research

Figure 25: China’s output of flat and long products

Million tonnes, 1990-2010

450

400

350

300

Figure 26: China still imports high-end products

% of total steel product imports, Q1-2012

Plate and sheet

Bar and rod

250

200

150

100

50

0

Wire rod

Hot rolled flat products

1990 1993 1996 1999 2002 2005 2008

Tube and pipe

Billet

Angle, shape and section

0 20 40 60 80 100

Sources: WSA, Standard Chartered Research Sources: Chinese customs, Standard Chartered Research


EAFs are still under-developed in China compared to the developed

economies

The advantages of EAFs have benefited developed economies; we believe they will benefit China in the

long term

EAFs are the choice of the futureFigure 27 summarises the three main types of steelmaking furnaces: basic oxygen

furnace (BOF), electric arc furnace (EAF) and open hearth furnace (OHF). BOFs and

EAFs are the most commonly used furnaces globally, although their contribution to

total steelmaking varies by country. OHFs have been phased out due to their heavy

dependence on energy and their inability to produce high-end products. Even

in China, there has been virtually no OHF production since the early 2000s,

although OHFs accounted for 51% of China‟s steel production in 1970.

China‟s steel production is particularly reliant on BOFs, which require more iron ore

than EAFs. Figure 28 shows steel production by BOFs and EAFs in major countries;

China was the world‟s top producer of BOF steel in 2010.

The historical trend of the development of BOFs and EAFs in China contrasts with

developed economies, as shown in Figures 29 and 30. Between 1970 and

2010, China‟s BOF steel production surged from 25% to 90% of the total , while EAF

output declined from 22% to 10%. In developed countries, the trend is the

opposite. Between 1970 and 2010, US steel output from BOFs declined from 48% to

38%. This period was accompanied by a surge in EAF output, from 15% to 61%.

Historically, the expansion of EAF output was restricted by the lengthy transformation

process from scrap to steel, but since the early 1990s technological developments

have significantly reduced the time for EAF steelmaking. As a result, EAF

production has grown rapidly in the US, Germany and South Korea. Growth in EAF

output is also a

result of the structural change in market applications for steel in developed economies.

Figure 27: Steelmaking furnaces

Raw material Energy source Products Notes

Basic oxygen furnace (BOF) Iron ore and scrap (15-25%) Coke Carbon steel, low-alloys NA

Electric arc furnace (EAF) Scrap (100%) ElectricityHigh-end carbon steel,

low-alloys, alloys

Main method for production of high-end products

Open hearth furnace (OHF)Scrap, iron ore and flux(limestone and quicklime) Gas and heavy oil General products Very energy-intensive

Source: Standard Chartered Research

Figure 28: Steel output from BOFs and EAFs

% of steel output, 2010

100%

90%

80%EAFs

Figure 29: Steel output from BOFs, 1970-2010

% of steel output

100

90China

70%

60%

50%

40%

30%

20%

10%

0%

80

70

60

50

BOFs40

30

20

Germany Japan

Korea

US

China Japan Germany South Korea US 1970 1975 1980 1985 1990 1995 2000 2005 2010

Sources: WSA, Standard Chartered Research Sources: WSA, Standard Chartered Research


Key strengths and weaknesses of EAFsOther advantages in electric steelmaking have driven EAF expansion in developed

economies.

1. The use of EAFs allows steel to be made from a 100% scrap metal feedstock.

This greatly reduces the energy required to make steel relative to primary

steelmaking from ores, also helping to help reduce carbon emissions.

2. EAFs have greater operational flexibility than BOFs. EAFs can be started and

stopped quickly, allowing steel mills to adjust production according to demand. In

contrast, BOFs are unable to alter their production much and are never stopped

for years at a time.

3. EAFs are flexible in terms of feedstock. Although scrap steel is usually the main

feedstock, hot metals from BOFs or direct-reduced iron (DRI) can also be used

as feed if they are economically viable.

4. EAFs are the main furnaces for mini-mills, which can be located relatively close

to steel product markets. Therefore, transport requirements are lower than

for integrated mills, which would commonly be located near ports for

access to shipping. This means the capital cost of building a mini-mill is

significantly lower than an integrated mill. In South Korea, the capex

requirement to build a mini- mill is USD 307/t, versus USD 875/t for an

integrated mill. In China, we estimate that the cost of building EAF capacity is

CNY 1,300-1,400/t, more than 70% lower than the c.CNY 5,000/t required

for an integrated converter, including sinter and coking plants.

5. Building a mini-mill using EAFs as the main furnaces usually takes 12-18

months, versus three years for an integrated mill using BOFs. This allows steel

mills to respond efficiently to demand.

Figure 30: Steel output from EAFs, 1970-2010

% of steel output

70

60 US

50 South Korea

40Germany

30Japan

20

China10

0Jan-70 Jan-74 Jan-78 Jan-82 Jan-86 Jan-90 Jan-94 Jan-98 Jan-02 Jan-06 Jan-10

Sources: WSA, Standard Chartered Research



Environmental and power issues need to be addressed, but they

should not prevent the development of EAFs in China

EAFs are cheaper to operate and are less polluting and energy-

intensive than might be thought

But there are also challenges, mainly related to the environment. Much of the capital

cost of a mini-mill (using EAFs) usually relates to systems intended to reduce

adverse environmental effects, including enclosures to reduce high sound levels and

d u st collect o rs for furnace off-gas. Meanwhile, mini-mills also have to invest in

cooling water systems, equipment to deal with slag production, heavy truck traffic for

scrap, materials handling and products, as well tackling the environmental effects of

electricity generation.

An extremely important issue for EAFs is the power supply system. Due to the very

dynamic quality of EAF loads, technical measures are required to maintain the quality

of power for other customers. Flicker and harmonic distortion on a power system are

also commonly induced by EAF operations.

Production costs for EAFs are lower than BOFsFigure 31 shows a general picture of steel production costs for EAFs and BOFs. On

average, EAF production costs are c.20% lower than BOF costs. This advantage of

EAFs has been particularly obvious since early 2010. Many might wonder if EAFs are

economically feasible in China, as they appear to require higher

electricity consumption during the steelmaking process. However, when also

factoring in iron- making and coking process, the total energy consumption of

steelmaking by EAFs is only c. 40% that for BOFs, which represents energy savings

of 60%.

Figure 32 shows raw-material and energy consumption/emissions associated

with producing one tonne of crude steel from EAFs and BOFs. EAFs are not

reliant on iron ore and require 90% less coking coal than BOFs. Electricity demand

from EAFs is generally 60% lower than from BOFs, as the latter have a longer

production chain. In terms of pollution, EAFs produce 27% of the CO2 emissions

produced by BOFs, while dust generation is only 10% that of BOFs.

Figure 31: China steel costs – EAFs versus BOFs (CNY/t)

7,000

6,000Production cost for

BOFs

5,000

4,000

3,000

Production cost forEAFs

2,000

1,000Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Sources: Bloomberg, Standard Chartered Research


http://en.wikipedia.org/wiki/Dust_collector

http://en.wikipedia.org/wiki/Dust_collector

BOFs EAFs

Iron ore, kg 1,725 0


Higher scrap requirement, the absence of an emissions tax, and

mills’ social responsibility are factors holding back EAF expansion

in China for now

We expect domestic scrap supply to increase as the economy matures

Significant raw-material savings can be achieved by using EAFs

A promising long-term outlook for EAFsThe fact that EAFs naturally require a lot more scrap steel than BOFs is one of the

main reasons why China has not built more EAF capacity, in our view. There are also

other reasons. First, the absence of a tax on CO2 emissions makes the cost

advantage of using EAFs much less obvious. China is unlikely to impose such a tax

in the near term, as c.50% of its blast furnaces are state-owned enterprises. Second,

although EAFs are easier to turn on and off, particularly during periods of economic

downturn or steel oversupply, steel mills in China operate for other reasons, such as

maintaining social stability by providing jobs to locals.

We believe electric steelmaking should be the future choice for China‟s steel

mills given its numerous strengths, particularly its lower cost, flexibility and

ability to produce high-end products. In developed countries, recycling already

accounts for around half of the steel produced every year. The near-term

concern in China surrounds the domestic supply of scrap steel. While steel

recycling is in its early stages and is extremely fragmented, we expect it to grow as

the economy matures – hence reducing the cost of recycling. But this is a long-

term story. Steel mills still have a few years to consider this matter, as scrap

availability is unlikely to increase to a level sufficient to support more EAFs in the

next five years.

One important implication here is that increasing use of EAFs will likely reduce

China‟s reliance on iron ore and coking coal in the long term. In Figure 33, we show

four scenarios for raw-material consumption by China under different EAF production

scenarios in 2015. Our base-case assumption is that China‟s EAF production

will stay at 10% of total crude steel output in 2015, unchanged from today. But if

EAFs contribute 20% to total crude steel output by then, China will require 153mt

less iron ore and 52mt less coking coal, and will generate 194mt less CO2.

Compared with acquiring iron ore mines overseas, we believe building EAFs

to reduce the reliance on imported iron ore is a relatively easy option for steel mills.

Figure 32: Raw-material and energy consumption/emissions associated with producing one tonne of crude steel

Coking coal, kg 645 65

Scrap steel, kg 138 1,050

Electricity, gigajoule 23.3 9.6

CO2, kg 3,000 800

Dust, kg 600 60

Sources: WSA, Mysteel, Standard Chartered Research

Figure 33: Raw-material consumption scenario for different EAF production scenarios in 2015Steel

production by EAFs

Steel production by BOFs

CO2 emissionsMillion tonnes Iron ore Coking coal Scrap steel

8% 71 815 1,405 530 187 2,500

10%* 89 797 1,375 520 203 2,461

15% 133 753 1,298 494 243 2,364

20% 177 708 1,222 468 284 2,267

Savings, 20% versus 10%, mt -153 -52 81 -194

Savings, 20% versus 10%, USD bn** -18.4 -9.4 32.4 Priceless

*Our base-case assumption; ** Assuming iron ore price at USD 120/t, coking coal price at USD 180/t and scrap steel price at USD 400/t;




Section III – Inevitable restructuring of the steel industry Southern and western China will likely see more steelmaking capacity

Large mills will expand, but small mills can still survive

Market forces will dictate the future structure of China’s steel industry

China’s steel industry remainsdisorderly and imbalanced

The status quoAlong with the impressive growth in domestic demand in the past decades, China‟s

steelmaking ability has made significant inroads. In 1996, China surpassed Japan to

become the world‟s largest steel producer, with a global market share of 13%. Today,

China produces nearly half of global annual steel output (Figure 34). Its steel

production is more than double the combined output of the US, Germany, Japan and

South Korea. However, China‟s steel industry is more fragmented and less organised

than in developed economies. In 2010, steel production by China‟s 20 largest steel

mills accounted for only around 50% of the country‟s total steel output.

Regional imbalances are also obvious. As we show in Figure 35, northern China is

home to the largest numbers of steel mills, while southern China – the country‟s

main manufacturing hub – has far fewer. Figure 36 shows China‟s 20 largest

steel mills (for a list of the world‟s top steel producers in 2010, please see

Appendix II), and Figures 37 and 38 show finished steel production by province.

In 2011, northern China accounted for 55% of the nation‟s total output of

finished steel products, compared with 46% in 2001. By contrast, southern China

contributed less than 10% of overall finished steel production in 2011.

In order to restructure the steel industry, the government has encouraged mergers

and acquisitions among state-owned mills over the past 10 years. However, progress

has been slow, with limited success between 2006 and 2010.

Meanwhile, steelmaking capacity is moving in the opposite direction to that desired

by Beijing – while outdated steelmaking capacity has been phased out, newer and

larger capacity has replaced it. We estimate that as of the end of 2011,

China‟s steelmaking capacity hit nearly 800mt, almost double the size in 2006.

We expect continued capacity growth in the long term (and we are supportive of

such growth), as the country‟s steel demand will require greater supply over the

long term than at present. In view of this, we would not be surprised to see total

steelmaking capacity reach 900mt by 2020; utilisation should remain very high at

around 90%, despite

fluctuating profitability.

Figure 34: China’s contribution to global steel output (%) Figure 35: Map of mainland China’s top steel mills (mt)

50

45

40

35

30

25

20

15

10

5

01967 1972 1977 1982 1987 1992 1997 2002 2007

Sources: WSA, Standard Chartered Research Sources: MB, Standard Chartered Research



Southern and western China will build more steelmaking capacity in

the future

Regional outlookRegional imbalances in China‟s steelmaking should correct in the next 10 years as a

result of new steelmaking capacity in southern and western China. Large steel mills

will continue to grow, but smaller ones could also find a niche. Industry restructuring

will eventually be guided by market forces.

We expect southern and western China to build substantially more steelmaking

capacity than at present, while most of northern China will have a limited ability to

expand further. Steel mills should look to expand their business interests in

these areas by utilising government support (i.e., tax rebates that help to reduce

capital and operating costs). Figure 39 outlines China‟s plans for the

development of its steel

industry between 2011 and 2015, according to the country‟s 12th

Five-Year Plan for

the steel industry.

For western China, the plan is to „moderately‟ develop the regional steel industry

given the strength in resources. Xinjiang, in particular, is a popular location for new

steelmaking capacity owing to readily available steelmaking raw materials, including

iron ore and coal.

Southern and south eastern China will be encouraged to build major steelmaking

bases given the lack of sufficient steel production in this consumption-intensive

region. Three major bases, namely Zhanjiang (Guangdong),

Fangchenggang (Guangxi) and Ningde (Fujian), have been given approvals by

Beijing.

Zhanjiang and Fangchenggang, operated by Baosteel and Wuhan Iron and

Steel, have a designed capacity of nearly 10mt of sheet per year each (see Figure

40 for details of both projects). These two projects were approved by Beijing in May

2012. However, we are concerned that the two neighbouring bases have a rather

similar product mix, since their sheets will be mainly used in automobiles and

home appliances. It remains unclear whether Baosteel and Wuhan will

delay the construction of the bases because of this, but in the long term, we

think it makes sense to build integrated mills in places with easy access to ports to

reduce the cost of delivering iron ore inland. In Ningde in Fujian province (south

eastern China), a

12mt high-end-products base will be built, to be jointly operated by Anshan Steel and

Figure 36: Top 20 steel mills in mainland China

mt, as of 2010

Beitai Panzhihua Hebei Jinxi

Jiuquan Jianlong Steel Jiangxi Xinyu

Taiyuan Rizhao Steel

Anyang Baotou

Valin Group Maanshan

Benxi Steel Anshan Steel

Shandong Shougang

Shagang groupWuhan Steel

BaosteelHebei Steel

0 10 20 30 40 50 60

Sources: MB, Standard Chartered Research



Fujian Sangang. Note that while mills are allowed to build more capacity, they must

agree to dismantle part of their old capacity at the same time.

We believe most of northern China will be unable to expand output capacity

significantly, as the restructuring of current capacity will be the main theme

going forward. Heilongjiang is an exception. Under Beijing‟s five-year plan,

Heilongjiang is the only northern province being encouraged to further develop its

steel industry, as it is rich in coking coal and geologically close to iron ore-rich

Russia. The provincial government has set targets to double its crude steel

output to 10-12mt by 2015. Output of finished steel products will be expanded to

9.6-11.5mt, from 6.0mt in 2011. We expect utilisation of future steel capacity in

Heilongjiang to be as high as 90%, given its strength in securing low-priced raw

materials.

Figure 37: Map of finished steel output in mainland China

2001 and 2011, % of total output

Xinjiang0.8%1.1% Inner Mongolia

2.4%Ningxia 1.6%

0.0%0.1%

ShanxiHebei

12.2%

Heilongjiang0.5%0.7%

Jilin1.2%1.2%

Liaoning10.5%6.5%

Beijing4.6%0.3%

Qinghai0.2%0.2%

Gansu1.4%0.9% Shaanxi

3.1%3.8%

21.9% Shandong5.3%8.0%

0.4%1.2%

Henan3.0%3.8%

Jiangsu

11.1%

Sichuan4.0%2.5%

Hubei5.8%4.1%

Anhui3.5%3.1%

11.4%

Zh

Shanghai10.4%2.8%

ejiang

Hunan2.5%

Jiangxi2.4%

3.6%

Guizhou0.9%

2.2% 2.6% Fujian2.1%

1.2%1.5%

Guangxi0.9%2.0%

Guangdong3.6%3.6%

Blue figure: production in 2001

Hainan0.1%0.0%

Green figure: production in 2011

Sources: Mysteel, Standard Chartered Research


Free-market forces should help to decide the direction of restructuring

Steel mills – Getting even largerIn the next 10 years, we expect China‟s large steel mills to grow even larger

by expanding their output capacity with government support, as well as via mergers

and acquisitions. Mergers and acquisitions have proved difficult in the last decade,

as the restructuring of state-owned mills almost always faces headwinds from

different interest groups, particularly during highly profitable periods.

However, given declining profit margins and increasing competition in the long term,

we believe mills in financial difficulty will start to seriously consider deals with their

competitors. While in China, as elsewhere, the government has been deeply involved

in the steel business at the developing stages, we believe that the restructuring of the

industry will ultimately be decided by market forces.

We believe that as long as small mills are profitable, the government should not force

them to leave the market. With the economy maturing and more scrap economically

available, we believe the future trend is for China to build more lower-cost mini-mills

in its hinterlands (as discussed in Section II). Those that rely heavily on high-cost iron

ore and coking coal without economies of scale will find it difficult to survive.

Figure 38: Output of finished steel products by province

Provinces 2001 (kt) 2011 (kt) % of total output in 2001 % of total output in 2011

Hebei 19,144 192,268 12.2 21.9

Jiangsu 17,541 99,940 11.1 11.4

Shandong 8,344 70,337 5.3 8.0

Liaoning 16,552 57,399 10.5 6.5

Tianjin 4,450 51,638 2.8 5.9

Hubei 9,117 35,697 5.8 4.1

Shanxi 4,940 33,692 3.1 3.8

Henan 4,754 33,512 3.0 3.8

Guangdong 5,671 31,766 3.6 3.6

Zhejiang 3,076 31,353 2.0 3.6

Anhui 5,486 27,430 3.5 3.1

Shanghai 16,411 24,828 10.4 2.8

Jiangxi 3,829 22,474 2.4 2.6

Sichuan 6,290 22,333 4.0 2.5

Hunan 3,890 19,434 2.5 2.2

Guangxi 1,404 17,593 0.9 2.0

Fujian 3,335 15,603 2.1 1.8

Inner Mongolia 3,817 14,173 2.4 1.6

Yunnan 1,810 13,514 1.2 1.5

Jilin 1,938 10,690 1.2 1.2

Shaanxi 642 10,354 0.4 1.2

Xinjiang 1,278 9,802 0.8 1.1

Chongqing 1,614 9,482 1.0 1.1

Gansu 2,256 8,128 1.4 0.9

Heilongjiang 762 5,966 0.5 0.7

Guizhou 1,386 4,624 0.9 0.5

Beijing 7,173 2,870 4.6 0.3

Qinghai 363 1,414 0.2 0.2

Ningxia 4 765 0.0 0.1

Hainan 79 232 0.1 0.0

Total 157,354 879,311 100.0 100.0

Sources: Mysteel, Standard Chartered Research


Project Fangchenggang Zhanjiang

Location Guangxi Guangdong


Figure 39: The Chinese government’s development plans for the steel industry between 2011 and 2015

Regions Government plan

Bohai Bay and Yangtze River Delta No plan to build any new steelmaking capacity.

Hebei, Shandong, Jiangsu, Liaoning and Shanxi To remove outdated steelmaking capacity via mergers and acquisitions.

Hunan, Hubei, Henan, Anhui and Jiangxi To push forward structural change and upgrades of the regional steel industry.

Western China To „moderately‟ develop the regional steel industry on the basis of resources strength.

South and south-eastern coastal areaTo continue the construction of steelmaking bases in the region, particularly in Zhanjiang(Guangdong), Fangchenggang (Guangxi) and Ningde (Fujian).

Yunnan and Heilongjiang To develop the steel industry by utilising cross-border mining resources and markets.

Sources: The 12th Five-year Plan for Steel Industry, Standard Chartered Research

Figure 40: Summary of two large-scale steel projects

Owner Wuhan Steel Baosteel

Capex, CNY bn 64.0 69.7

Capacity, mt per year

Iron 8.5 9.2

Crude steel 9.2 10.0

Steel product (sheet) 8.6 9.4

Crude steel capacity to be eliminated in the province 10.7 16.1

Net capacity addition in the province -1.5 -6.1

Sources: Company reports, Standard Chartered Research



Section IV – Steel growth provides long-term support to iron ore We expect China’s iron ore imports to peak in 2025, providing long-term support for iron ore prices

China will be more reliant on imports due to falling domestic ore grades

Iron ore prices will not start to trend down until 2014

China’s dependence on iron ore imports will growIn this section, we provide our long-term forecasts for China‟s iron ore

demand, production and imports up to 2026 (Figure 41). We expect demand to peak

at 775mt (measured by Fe content) in 2020, but imports to peak at 989mt (rock

weight) in

2025. Imports are a critical influence on future iron ore price trends. We

expect China‟s dependence on imported iron ore to increase further in the long term

due to declining domestic ore grades, although growing EAF output should help

reduce

such dependence.

Long-term, China should be self- sufficient in terms of steel supply

Steel outputOur view of China‟s long-term steel output is the starting point for our iron

ore forecasts. Figure 42 shows our forecasts for China‟s crude steel output.

These assume that the country‟s steel output growth will realign with demand in

the long term. Between 2012 and 2020, China‟s crude steel output growth should

continue, followed by a period of flat performance between 2021 and 2023.

From 2024 onwards, we expect steel output to decline as consumption wanes. We

observe the same in the developed economies we have analysed.

Our view of steel output by BOFs is particularly relevant to iron ore demand, as iron

ore accounts for 75-85% (in general) of steelmaking raw materials required by

a BOF. In China, this rate can be as high as 95%. While we expect steel output

by BOFs to grow between 2012 and 2020 before declining between 2021 and 2026,

we have also allowed for increasing use of scrap by BOFs between 2018 and

2022. Meanwhile, we expect increased EAF output to cap the upside for iron ore

demand in

the long term, although the effect should be moderate.

Figure 41: China’s iron ore balance and our price forecasts

Forecasts in BLUE (RED) indicate upward (downward) revision

Million tonnes 2009A 2010A 2011A 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F

Iron ore demand,62% grade 850 924 1,005 1,052 1,116 1,160 1,183 1,207 1,225 1,235 1,244 1,249 1,244 1,239 1,239 1,227 1,202 1,154

Fe demand 527 573 623 653 692 719 734 748 760 766 771 775 771 768 768 761 745 716

Fe supply, domesticand imports 559 588 636 677 738 757 767 765 758 770 774 770 770 771 755 756 740 713

Domestic iron oreoutput, total weight

875 1,066 1,315 1,447 1,663 1,913 2,009 1,968 1,929 1,929 1,910 1,872 1,778 1,689 1,605 1,492 1,388 1,291

Domestic iron oreoutput, Fe content 201 245 263 289 333 363 382 374 347 347 344 318 302 287 257 239 208 194

Iron ore imports 628 619 689 717 739 706 691 705 744 766 789 829 858 888 923 960 989 964

Iron ore imports,Fe content 358 343 373 388 406 394 385 391 410 423 430 452 467 484 499 517 532 519

Iron ore price*, 127 135 125 115USD/t

80 147 170(143)** (182)** (180)** (133)**

113 114 120 121 128 122 - - - - 124

*62% Fe content, cost and freight at China’s Tianjin port; ** Previous forecasts

Sour Chartered Research


Steel output by BOFs 521 565 615 644 682 709 724 738 749 755 760 763 759 754 754 746 732 702

% y/ySteel output by BOFs 14.6 8.5 8.7 4.7 6.0 4.0 2.0 2.0 1.5 0.8 0.7 0.4 -0.6 -0.6 0.0 -1.1 -2.0 -4.0


We expect iron ore demand to peak in 2020

Domestic iron ore production has limited potential to rise in the next few years, in our view; falling ore

grades are another concern

All about iron oreDemandWe have adopted three key assumptions in forecasting China‟s long-term iron

ore demand: (1) we assume that China‟s long-term steel demand will be met

primarily by domestic production; (2) steel output contributed by BOFs should

gradually decline over time, along with the increasing availability of scrap for

EAFs as recycling activities grow with economic development; (3) 1.6t of iron ore

is required for each tonne of steel output, assuming an iron ore grade of 62%.

Our forecasts for China‟s iron ore demand (Figure 41) are based on the iron content

required for steel production by BOFs and EAFs. While BOFs are heavily reliant on

iron ore for steelmaking, EAFs also use DRI made from iron ore as

feedstock, although at a low proportion of c.20% in China. We have considered iron

ore demand (in the form of DRI) by EAFs in our forecasts. Multiplying by 1.6, we

obtain iron ore demand from BOFs and EAFs at a grade of 62%. After adjusting

for grading, we forecast that China‟s Fe demand will peak at 775mt in 2020,

before declining from

2021. Between 2018 and 2026, the increasing availability of scrap will crowd out the

use of iron ore, but only moderately, in our view.

China’s domestic productionDomestic iron ore production increased to meet extraordinary growth in demand

throughout the 2000s, but mines were still able to produce more over the last

decade. In 2011, China‟s iron ore output hit a record-high level of 1,315mt (weight of

rock), more than five times higher than the volume in 2000. The biggest challenge for

iron ore producers is the declining iron content in the rock.

The average iron content of China-origin ores is c.20% today, versus c.30% in 2004.

This is also significantly lower than c.60% for Australian- and Brazilian-origin

ores. Figure 43 shows our forecasts for falling grades in China and elsewhere.

Long-term, we believe falling ore grades in China will make the country more reliant

on imported ores. Although ore grades in Australia have also been declining in

recent years, a lower contribution by India (which has exported huge volumes of

lower-grade ores to China in the last five years) will allow the average grade of ores

supplied to China to remain at a relatively stable level over the long term. Meanwhile,

we expect iron ore-

rich countries, mainly Brazil and Australia, to take market share from India.

Figure 42: Our forecasts for China’s steel output

2009A 2010A 2011A 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F

mt

Crude steel output 574 627 683 715 758 788 804 820 832 841 847 852 852 852 852 848 831 798

Steel output by EAFs 52 61 68 72 76 79 80 82 83 86 87 90 94 98 98 102 100 96

Crude steel output 14.6 9.3 9.0 4.7 6.0 4.0 2.0 2.0 1.5 1.0 0.8 0.6 0.0 0.0 0.0 -0.5 -2.0 -4.0



Based on our understanding of China‟s iron ore mining industry, we do not expect

significant growth in iron ore output in the coming years, although falling ore grades

always imply that higher output is required. We forecast average output growth

of

11% y/y between 2012 and 2015, but expect domestic iron ore production to start to

trend down from 2016. During this period, ore grades should continue to fall

from

20% at present to around 15% in 2026. Domestic production of iron ore is likely to

peak at 2,009mt (weight of rock) in 2015. In terms of Fe content, total Fe supply from

domestic iron ore output will peak at 382mt in 2015. This is critical to our forecasts of

China‟s iron ore imports.

We expect China’s iron ore importsto peak in 2025

ImportsWhen forecasting China‟s long-term iron ore imports, we assume that the gap

between domestic supply and total Fe demand will be filled by imports. This means

total Fe supply, including domestic supply and imports, should always be in line with

total Fe demand. Historical trends suggest the same thing. As we show in Figure 41,

total Fe supply did not vary much from total Fe demand in 2009, 2010 and

2011, although there were small differences. We assume that they will continue to

go hand in hand in the long term. Considering the weighted average grade for

imported iron ore shown in Figure 43, the peak year for China‟s iron ore imports is

2025. The peak level is 989mt (Figure 41). After this, moderate declines will be seen

in 2026.

As a result of this methodology, we have lowered our forecasts for China‟s iron ore

imports from 2013-15. Our 2013 forecast is now 739mt, versus 760mt previously; for

2014 we forecast 706mt, from 799mt previously; and for 2015 we forecast

691mt, from 838mt previously. These downward revisions will help to ease

tightness in the seaborne iron ore market (although larger supply of iron ore

will also be a key contributor). Our seaborne balance sheet (Figure 44) shows

that the market deficit will start to narrow sharply from 2014, and will turn to a

surplus in 2015.

Our long-term forecasts for iron ore prices remain unchanged, although we

have revised down our 2012 prices to take into account weakness in the global

economy and its negative impact on near-term prices (see On the Gro u n d , 2 4

A u g u st 201 2 ,

‘ Ir o n ore – C ast-ir o n p r o o f of sl o w de m a nd’ ). We have also lowered our price

forecasts for 2013 to USD 135/t from USD 182/t, for 2014 to USD 125/t from

USD 180/t, and for 2015 to USD 115/t from USD 133/t, to reflect downward revisions

to China‟s imports.





Figure 43: Iron ore grades

Iron content, % 2009A 2010A 2011A 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F

Weighted average iron ore grade, total supply to China

37 35 32 32 32 32 32 33 33 34 34 34 35 36 37 38 39 40

Average iron oregrade, China

23 23 20 20 20 19 19 19 18 18 18 17 17 17 16 16 15 15

Weighted average iron ore grade, imports

57 55 54 54 55 56 56 55 55 55 55 55 54 54 54 54 54 54

Average iron oregrade, Australia

60 59 59 59 59 58 58 58 58 58 57 57 57 57 56 56 56 56

Average iron ore grade, Brazil

62 62 62 62 62 62 62 62 61 61 61 61 61 61 61 61 61 61

Average iron oregrade, India

58 55 55 55 55 55 55 54 54 54 54 54 53 53 53 53 52 52

Average iron ore grade, South Africa

64 64 64 64 64 64 64 64 64 64 64 64 64 64 64 64 64 64

Average iron oregrade, ROW

34 34 33 33 33 33 32 32 32 32 31 31 31 31 31 30 30 30


Figure 44: Global iron ore seaborne balance

mt, unless otherwise noted 2011E 2012F 2013F 2014F 2015F

Seaborne supply (exports)

Australia 438 480 510 547 617

Brazil 329 339 356 385 416

India 78 50 35 25 25

South Africa 56 61 67 71 72

ROW 124 126 134 154 204

Global 1,025 1,056 1,102 1,182 1,334

Global, % y/y 7.3 3.0 4.4 7.3 12.9

Global, & y/y growth in volume 70 31 46 80 152

Seaborne demand (imports)

China 689 717 739 706 691

Europe 153 122 128 134 141

Japan 129 131 133 136 139

South Korea 65 67 69 71 73

Taiwan 21 21 21 21 21

ROW 126 128 130 137 144

Global 1,183 1,186 1,220 1,205 1,209

Global, % y/y 9.9 0.3 2.9 -1.2 0.3

Global, % y/y growth in volume 107 3 34 -15 4

Balance -158 -130 -118 -23 125

Balance (previous) -158 -145 -116 20 185




Appendix I: The process of steelmaking and finishing

Steelmaking

Steel finishing

Source: AISI



Appendix II: World’s top steel producers in 2010

Rank Company CountryProduction,

million tonnesRank Company Country

Production, million tonnes

1 ArcelorMittal Luxembourg 90.50 59 Essar Steel India 5.95

2 Hebei Steel China 52.90 60 SSAB Sweden 5.80

3 Baosteel China 44.50 61 Fujian Sangang China 5.60

4 Wuhan Steel China 36.55 62 Tianjin Tiantie China 5.50

5 Nippon Steel Japan 36.14 63 Tianjin Metallurgical China 5.50

6 Posco South Korea 33.72 64 Hebei Jingye China 5.23

7 JFE Steel Japan 32.66 65 AK Steel USA 5.14

8 Shagang Group China 30.12 66 Tonghua China 5.10

9 Shougang China 25.84 67 Hadeed Saudi Arabia 5.02

10 Tata Steel India 23.50 68 CSN Brazil 4.90

11 Shandong China 23.15 69 Chongqing China 4.56

12 US Steel USA 22.26 70 Ezz Steel Egypt 4.46

13 Anshan Steel China 21.00 71 Steel Dynamics USA 4.46

14 Gerdau Brazil 17.80 72 Habas Turkey 4.44

15 Benxi Steel China 16.80 73 Shaanxi Longmen China 4.06

16 ThyssenKrupp Germany 16.70 74 Nisshin Steel Japan 3.83

17 Nucor USA 16.56 75 Ahmsa Mexico 3.69

18 Evraz Russia 16.29 76 Icdas Turkey 3.61

19 Maanshan China 15.40 77 Xinxing Ductile China 3.57

20 Valin Group China 15.11 78 Hangzhou China 3.49

21 Severstal Russia 14.70 79 Zaporizhstal Ukraine 3.45

22 Riva Group Italy 14.10 80 Lingyuan China 3.44

23 Metinvest Ukraine 13.83 81 Rockcheck Steel China 3.34

24 SAIL India 13.58 82 Lion Group Malaysia 3.33

25 Sumitomo Metal Japan 13.10 83 Vizag Steel India 3.24

26 Hyundai Steel South Korea 12.91 84 Hebei Qianjin China 3.05

27 China Steel Taiwan 11.93 85 Zhejiang Quzhou Yuanli China 3.04

28 NLMK Russia 11.50 86 Xilin Steel China 3.02

29 MMK Russia 11.40 87 Qingdao China 3.00

30 Imidro Iran 11.34 88 Shanxi Haixin China 2.96

31 Baotou China 10.12 89 Dongkuk Steel South Korea 2.91

32 Anyang China 10.02 90 Commercial Metals Co US 2.85

33 Rizhao Steel China 9.81 91 Xingtai China 2.73

34 Taiyuan China 9.60 92 Lengshuijiang China 2.61

35 Jiangxi Xinyu China 8.87 93 Sichuan Chuanwei China 2.61

36 Techint Luxembourg 8.84 94 Henan Jiyuan China 2.60

37 Jianlong Steel China 8.82 95 TMK Russia 2.60

38 Jiuquan China 8.57 96 Delong Steel Singapore 2.59

39 Hebei Jinxi China 8.25 97 Fangda Special Steel China 2.57

40 ISD Ukraine 7.77 98 BMZ Belarus 2.53

41 Voestalpine Austria 7.70 99 Taishan China 2.51

42 Kobe Steel Japan 7.61 100 Trinecke Zelezarne Czech Rep 2.50

43 Panzhihua China 7.50 101 Tangshan Ganglu China 2.48

44 Beitai China 7.49 102 Tianjin Steel Pipe China 2.40

45 Tangshan Guofeng China 7.49 103 Dazhou China 2.35

46 Usiminas Brazil 7.29 104 Jiangyin Huaxi China 2.33

47 Erdemir Turkey 7.10 105 Ispat Industries India 2.33

48 Pingxiang China 7.05 106 Shandong Weifang China 2.31

49 Bluescope Steel Australia 6.78 107 Rautaruuki Finland 2.29

50 Nanjing China 6.77 108 Diler Turkey 2.29

51 Salzgitter Germany 6.75 109 Vallourec France 2.20

52 JSW Steel India 6.38 110 Colakoglu Turkey 2.14

53 Changzhou Zenith China 6.31 111 Onesteel Australia 2.12

54 CITIC Pacific China 6.21 112 Shandong Shiheng China 2.11

55 Metalloinvest Russia 6.10 113 AFV Beltrame Italy 2.09

56 Mechel Russia 6.07 114 Acerinox Spain 2.06

57 Hebei Zongheng China 6.06 115 Shanxi Zhongyang China 2.05

58 Tianjin Tiangang China 6.00 116 Nanyang Hanye China 2.00

Source: MB



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West Virginia University, 1989

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Document approved by

HanPin Hsi

Global Head of Commodities Research

Data available as of

22:30 GMT 16 September 2012Document is released at

22:30 GMT 16 September 2012

China steel â€“_embracing_a_new_age_16_09_12_13_19 (1)

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