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Steel industry on a consolidation mode

By Zhang Qi (China Daily)
Updated: 2009-07-18 08:10

A worker walks past steel reinforcement bars as they are loaded at a steel products stockyard in Beijing. Large steel mills in the country are expected to go on a consolidation mode this year. [Agencies]

Contrary to expectations steel output in China will not see any slowdown and would continue its strong growth trajectory this year, according to industry experts.

Earlier reports had indicated that China's steel output in 2009 would drop to 427 million tons from over 500 million tons in 2008.

China's crude steel production has gained nearly 1.2 percent to touch 266.6 million tons in the first half of 2009, the National Bureau of Statistics said, thanks to the nation's 4-trillion-yuan ($586 billion) stimulus package and increased demand from builders and carmakers.

Latest statistics show that China's crude steel output in June touched 45.39 million tons, while daily production in June was around 1.51 million tons. The rate of output is equivalent to an annual production of 552.2 million tons, up 10 percent from 2008.

Steel output in the third quarter will continue to remain strong thanks to the strong demand from the property sector, said Melvin Guen, partner, Audit of KPMG China.

The government's new stimulus package also calls for massive expansion of the rail network in the country, which in turn could increase annual steel demand by nearly 9 million tons, he said.

China's monthly iron ore output jumped nearly 27 percent in June to 83.3 million tons, as demand for steel increased and prices rose, National Bureau of Statistics released on Friday.

The 27-percent jump in iron ore output is expected to reassure local steel mills that are facing uncertainties in their talks with global iron ore suppliers.

Meanwhile China's steel industry is expected to go into a consolidation mode with large steel mills leading the exercise, KPMG said in a recent report.

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"Major State-owned steel producers like Wuhan Iron and Steel Group, Baosteel and Angang Steel are expected to lead the consolidation moves this year," said Peter Fung, partner, Industrial Markets, KPMG China.

The restructured steel industry will be focused on China's north to south coastline, consisting of Angang Liaoning base, Shougang Hebei Caofeidian base, Baosteel Zhanjiang base and Wugang bases, the report said.

China is the world's largest producer and consumer of steel driven by its manufacturing sector, construction and automobile industries.

But despite the size of the industry, China's steel firms are disadvantaged in annual international iron ore negotiations due its low industry concentration.

It had already started the initial moves last year itself with 17 mergers and acquisitions.