China’s iron& steel capacity shows signs of transfer across regions in the context of de-capacity: iron& steel capacity of coastal provinces has generally risen, with Guangdong as a front runner, whose capacity has increased by 24 percent; while northeastern and northwestern provinces have experienced significant decline, Heilongjiang and Ningxia in particular have shrunk more than 30 percent. This indicates that when the economic development levels of different regions are unbalanced, those areas with thriving economy have greater demand for iron& steel, resulting in faster growth of iron& steel capacity.
Statistics show that Guangdong’s iron& steel capacity have increased by 24 percent from January to July year on year. Hebei, Shandong, Jiangsu and Guangxi have increased by 4.8 percent, 9 percent, 2.6 percent and 4.1 percent respectively. Heilongjiang and Ningxia’s capacity, however, has declined by more than 30 percent, representing the biggest drop in all the regions.
Iron& steel capacity in southern China rises
Driving by the task of absorbing excessive production capacity, China’s capacity of both pig iron and crude steel declined by 1.4 percent and 0.5 percent from January to July. But the capacity of rolling steel climbed, with accumulated output of 657,049,000 tons, up 1.9 percent year on year.
The southern coastal province Guangdong has witnessed the fastest growth of iron& steel capacity. Data shows that Guangdong has in total produced 8,841,300 ton pig iron, 120,574 ton crude steel and 21,882,200 ton rolled steel respectively from January to July, up 46.4 percent, 26.9 percent and 24 percent respectively year on year. The capacity of rebar, wire rod and cold-rolled sheet were 6,000,100 tons, 2,626,100 tons and 1,716,900 tons respectively, up 26.4 percent, 6.5 percent and 24.9 percent.
“Baoshan Iron& Steel’s project in Zhanjiang City has pushed up Guangdong’s capacity of iron& steel,” Qiu Yuecheng, senior analyst with Xiben New Line Stock Co., Ltd., told the journalist.
Guangxi, the neighboring province of Guangdong, also achieved 4.1 percent growth of iron& steel capacity in the first seven months, to reach 20,401,300 tons. Wuhan Iron and Steel Company Limited’s cold rolling production line in Fangchenggang City, a newly established iron& steel project with capacity of tens of millions ton, has already put into operation in this March.
In coastal provinces, Jiangsu, Shandong and Hebei, the three major iron& steel producing areas, saw increased capacity of crude steel and rolled steel. Shandong has produced 40,649,500 tons of crude steel and 55,973,600 tons of rolled steel respectively from January to July, up 4.8 percent and 9 percent year on year. Hebei’s crude steel and rolled steel capacity has increased by 0.55 percent and 4.8 percent respectively. Jiangsu’s crude steel and rolled steel capacity has also climbed by 3 percent and 2.6 percent respectively.
In this regard, Qiu said that Hebei and Jiangsu have apparent cost advantages, and enterprises’ efficiency is high. When the prices go up, enterprises’ profits soon pick up, and the output as a result surged. But in the northern and western China, the raw materials of steel plants are transported from the costal ports, and the products can hardly be consumed in local markets and have to be shipped to other provinces, thus the logistics and raw materials purchase produces relatively high costs.
To replace the reduced capacity of the inland provinces with expanded room for new capacity of the coastal areas has become a new direction of steel enterprises’ development plan. Baoshan Iron & Steel Co., Ltd. (600019.SH) and Wuhan Iron And Steel Company Limited (600005.SH) which have conducted integrated development in coastal provinces, are not exceptions. In this June, Hebei Iron & Steel Group Co. Ltd announced that the company and Xuanhua Steel Group Co., Ltd. as a whole will move out of Zhangjiakou City. The preserved capacity of Hebei Iron & Steel Group and Xuanhua Steel Group will be integrated and restructured with optimal capacity of Hesteel Tangsteel and Hesteel Chengsteel, which will then move to the coastal area of Tangshan City, to form a coastal fine steel base with capacity of 20 million ton in the future.
Capacity of northeastern and northwestern China declined sharply
From the beginning of the year, the Iron& steel capacity of northeastern and northwestern China declined sharply. In the first seven months, the Liaoning, Heilongjiang and Jilin’s crude steel capacity has decline by 7.2 percent, 27 percent and 20.8 percent respectively, and the output of rolled steel has dropped by 6.8 percent, 30.3 percent and 18 percent. It is worth noting that Liaoning was ranked the fourth and fifth in terms of crude steel and rolled steel capacity. It is the only one in the five biggest steel producing provinces that suffered huge decline in rolled steel output this year.
Similarly, all the five provincial level administrative regions in the Northwest, including Shaanxi, Gansu, Ningxia, Qinghai and Xinjiang, have seen declined output of rolled steel and crude steel. Shaanxi’ crude steel and rolled steel output in the first seven months were 4,660,000 tons and 6,527,000 tons respectively, down 23.7 percent and 35.8 percent year on year respectively. As for Xinjiang, its value added from iron& steel industry declined by 25.2 percent from January to May.
“The distribution of the whole iron& steel industry starts to transfer to areas along the Yangtze River and the coastal areas. Capacity in the middle and western China without competiveness will also be obliterated gradually. This is the trend for the development of iron& steel capacity in the future,” said Qiu.
“The data of iron& steel capacity on the one hand reflects that the economic development levels of different places in China varied, regions with thriving economy have greater demand for iron& steel, resulting in the rapid increase of capacity; on the other hand, the production status also reflects enterprises’ competitiveness. When steel enterprises maintain high output, it means that they are competitive in terms of costs and management efficiency,” said Li Xinchuang, head of the China Metallurgic Industry Planning and Research Institute.
The gradual rise of iron& steel capacity in southern China signals the new direction of industrial restructuring, transformation and upgrading of the iron& steel industry. The two projects in Zhanjiang City and Fangchenggang City have played an important role in improving local economic structure, promoting regional development and optimizing industrial distribution. And northeastern China, whose competitiveness in iron& steel industry weakened, is also expected to find new impetuses for economic growth in the reform.
Translated by Adam Zhang
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