May.12 MetalBiz--Subsequent to the state-owned steel powerful Baosteel Group and WISCO approved to commit each 10-mln-ton seabound project, Anshan Iron and Steel Group (Short for Angang), one of the first top three in China, is might to be waiting for the appreciation of the similar project in South China’s Fujian province from the government’s on-the-agenda issue.

Learned from a senior official with Fujian Metallurgical Holdings Company., Ltd, the 10-mln-ton project leading by Angang will be located along the coast port in Ningde city, Fujian province.

So far, part of the framework agreement nailed down in the year of 2006 has firstly understood by the public. Besides, some resources revealed that Angang’s coveted reorganization of Fujian Metallurgical Holdings Company., Ltd has made some further substantive improvements after the two-year negotiation.

According to the provincial plan, an introduced steel tycoon will undertake the development of steel sector in Fujian. Actually, Angang’s Fujian project has been brewing for a long time.

On Jun 29, 2006, Fujian’s government and Angang Group reached consensus of cooperation and officially signed the framework pact. But the outside doesn’t know anything about the specifics. Later the local government decided the Ningde city, which occupies the dominant position in ports, will be committed the meaningful construction. The project based on the pact with the capacity of 10 million tons will be contracted by two items, 6 million tons in the first period and 4 million tons in the second period.

Beyond all expectations, in 2007, Angang Group made some adjustments of the high level and Zhang Xiaogang became the new general manager, which laid aside the 10-mln-ton project. And the group focused on the 5-mln-ton project in Bayuquan, Yingkou City, Liaoning province at that time.

More complicated for Angang Group, just after the two sessions concluded, each Baosteel and WISCO’s proposed 10-mln-ton costal project was approved by the government. Therefore, some analysts hopefully predicted that the first phase 6-mln-ton project planned by Angang may be on the agenda in the near future.

The road to happiness is strewn with setbacks. Perhaps, it can exactly tell what Angang Group experienced in the process of reorganization. Before the pact inked, Angang planned to build a 1-mln-ton wire project in Ningde, but due to some restricts, it failed later.

But Angang will never give up entering into the Fujian market. Under the framework pact, the most important item is the 10 million tons steel project, and the essential prerequisite is, the leading provincial steelmill Fujian Sangang should be brought into under Angang Group.

According to a senior official from Fujian Metallurgical Co. controlled by Fujian Sangang, given the intention at that time, if Angang can make the project approved, Sangang Group will give away the shares to Angang Group.

Fujian Sangang Group is the largest steel enterprise in Fujian province, though, the steel output in 2007 is just mounted to more than 3 million tons. So Fujian steel market is more particular than the steel province, such as Hebei, Jiangsu, etc. Based on the customs data, steel output of the whole province totaled 5.8843 million tons while the provincial demands for steel was 13 million tons in the year of 2007.

When it comes to the way to reorganization, difference of the two sides still exists. Angang would like to adopt the way of free transfer and Fujian Sangang is inclined to the way of registering capital.

After the two years negotiation, a new way created for the two sides, that is, a joint venture will be set up jointly for running a project in attempt to waiting for a favorable opportunity when Angang could control Fujian Sangang.

However, an insider from Angang Group revealed in an interview, the two sides are still in the talk and didn’t gain the final result.

Instead, an insider from Fujian Sangang denoted that, the negotiation went smoothly before the new GM commissioned. “We want our new wire products use the brand of Angang, but they didn’t agree for having not enough confidence of the new products. But the finished products evidenced the quality, so Angang Group would like to have further cooperation with us now.” the insider said.

May 12 MetalBiz—As the pillar industry, which boosts the Chinese national economy to move forward rapidly and healthily, the development of steel industry in China has been the focus when the world economy situation and steel industry are changing continuously. However, there are four weaknesses in the development of Chinese steel industry.

Short supply of domestic steel products

The developed countries’ industrialization is a process of large consumption of natural resources and rapid accumulation of social wealth. The steel consumption has different characteristics in different development stages and industry structures. There are four stages:

One is the underdevelopment stage, when the per capital GDP is bellow $1000 and the strength of steel consumption is low; the second one is the preliminary and metaphase stage, when the per capital GDP is $1000-$2000 and the strength of steel consumption becomes stronger; the third is the metaphase and latter stage, when the per capital GDP is $2000-$4000 and the strength of steel consumption is in a high level; the last one is the mature stage, when the per capital GDP is over $4000 and the changes including optimization of industry structure, technology advance, and consumption structure of residents cause the steel consumption to slow down.

At present, China is in the metaphase, when the heavy and chemical industries boost the rapid development of manufacturing industries. In 2007, the consumption of crude steel was 434 million tons, up 13.1 percent year-on-year, while that of every ten thousand Yuan GDP was 176.1 kg, and the per capita consumption of crude steel of China was 328.7 kg. The data is lower than that of the developed countries. From 1901 to 2006, the accumulated consumption volume of Japan was 4.5 billion tons, America 7.7 billion tons and China only 3.5 billion tons. China has not reached the situation when the steel consumption is saturated, and there is still a large space for Chinese steel consumption to rise.

Restricted by factors like resources, energy and environment

Above all, the iron ore supply increase trails demand increase and China reply more on import. Actually, the iron ore resources are abundant. The reserve of iron ore is 160 billion tons in the world and the proved reserves can assure of 100 years demand. China’s reserves are rich but its quality is relatively low and exploring cost is high. Since 2000, the iron ore consumption of China rose 20.1 percent every year on average and dependency on import rose to 53 percent in 2007 from the 34 percent in 2000. It will keep around 50 percent by 2012.

The lack of water resources, an important resource of steel industry, exerts enormous pressure on steel industry. Besides, due to the tight energy supply, China has a long way to go to save energy and decrease consumption. Furthermore, the strict environmental demand restricts the further development of steel industry.

The tense transport capacity increases the costs of steel mills. In 2007, the world dry bulk transportation volume was 2.992 billion tons and that of iron ore and coal occupied 51.77 percent, which increased the costs of steel mills. 

High-end products have weak international competitive strength

Benefiting from the globalization and worldwide industry structure adjustment, the steel capacity and output scale of China rose rapidly to 500 million tons from 100 million tons with enormous market demand and relatively costs. The development of Chinese plate capacity has been slow. Especially the high-end plate products depend much on imports. However, since 2004, China adjusted domestic steel industry structure and promoted the capacity. Many products could meet the demand, which enhanced the export ability and China became a net export country of steel products.

Resources distribution starves for optimization

Steel industry is a technology, capital, resources and energy-intensive industry, and its competition depends on the ability of reorganization and domination to the available resources. Steel industry needs quantity of social resources. With the rapid development of world steel industry, the contradiction of tight worldwide resources becomes more and more obvious. It has become the key point to compete for and reorganize resources in the future steel industry.

In China, the distribution of steel production is inconsequential, the industry concentration is low and the products structure is unreasonable, which cause Chinese steel industry has low capacity to reorganize resources. China should promote the ability of reorganizing resources.

In one hand, we should accelerate the inside reorganization through technology and management innovation, and optimization of capital and resources. We should accelerate to eliminate obsolete capacity and decrease consumption and produce more products with high quality and high value added.

In the other hand, we should boost the reorganization of outside resources. To achieve this, we should first boost the adjustment of industry structure and then enhance the cooperation with the upstream enterprises.

May.9 MetalBiz--When the whole thing comes to light-another key point in the longsome reorganization. Panzhihua New Steel & Vanadium Co., Ltd (Pangang Vanadium, 000629), Chongqing Titanium Industry Co., Ltd of Pangang Group (Pangang Titanium, 000515) and Pangang Group Sichuan Changcheng Special Steel Co., Ltd (ST Changgang, 000569) have made a coincident notice to the public today claiming that Ansteel was nailed down as the third party holding cash option in the grave assets reorganization.

As the notice released, Ansteel will pay in terms of 9.59 yuan per share for the shareholder cash consideration to Pangang Vanadium and respectively in terms of 14.14 yuan per share and 6.50 yuan per share to Pangang Titanium and ST Changgang).

It is worth noticing that as of May 8, Pangang Vanadium closed at 9.39 yuan, Pangang Titanium closed at 14.62 yuan and ST Changgang closed at 6.78 yuan. So we can clearly see the share price of Pangang Vanadium in secondary market is lower than Ansteel’s payment of the consideration in cash.

Some insiders believed that the reasons for final nodding Ansteel are attributed to two points. On one hand, Pangang has always enjoyed the connected cooperation with Ansteel, which made a sound mutual understanding for the two sides. On the other hand, Ansteel has been a creditor for Pangang so the supportive relationship still exists in the future. Meanwhile, Ansteel as the third party for cash consideration give more confidence and guarantee to the investors. Besides, strategically, the joins can make a win-win situation and will impetus the dragging listing of Pangang Group for a while.

Some researchers said, the overall listing of Pangang Group will cover all the management assets and major mines resources, while the latter would be the most highlight of the listed company.

Some related responsible person from Pangang Group ever expressed that most of mines resources were held in the goup before listing, but once done, the listed company would boast absolutely rights of prospecting mines.

On an annualized basis, the mines output will amount to over 7 million tons with the average grade of 54 percent, which will help the group become only a few steel listed company that boasts ores and is able to self-sufficient for producing.

Not only use its own mines Pangang Group does, but it is taking actively measures for resources reserves and development of new mines in attempt to keep a sustainable supply in the long run. A plan made by the group signals the place of Xicang will be another important resource base for the group, and the depth purpose lies in the abundant mines resources in Xicang Liangshan areas.

Pangang Group’s location is the second largest region holding iron ore resources in China, accounting for 20 percent in national’s total reserve. Vanadium and Titanium magnetite resources are close to 10 billion tons, among which 15.7 million tons of vanadium resources (reckon on vanadium pentoxide), accounting for above 60 percent in national’s reserve and 11.6 percent in the world’s, and 870 million tons of Titanium resources, accounting for 90 percent in the total of domestic reserve and more than 30 percent in the world’s. All of these resources can lay a solid foundation for Pangang’s future development.  

May.8 MetalBiz--2008 global iron ore negotiation seems to be extremely deadlocked than before. World major steelmills have already reached the price agreements for iron ore in the new fiscal year, though, the leading two giants in the global stage are still mean to give their nods of the ‘first shot’.

Quite a few domestic experts believe the high-priced iron ore enlightened us on an obvious truth—owning staple products should be based on a long-term interests of China’s industrial development and make strategic choices off our own bat instead of affected by the market fluctuation, featured as turn harm into good and make unremitting efforts.

New characteristics in the talks

How difficult the new round of iron ore negotiation this year is beyond our expectation. The key point lies in the huge profits from the difference between spot ore price and long-term agreement price, which made the giants grind on changing the rule of settlement for the purpose of offsetting the price gap. Basically, the real purpose is to set up a new benefit pattern ensuring long-term demands in China.

It is learned that the global three iron ore giants totally opened with harsh bargains in the negotiation. Brazil’s Vale put forward the quality marginal based on the rising price, which embodied in the later talk. Australian BHP Billiton and Rio Tinto posed the most important competitiveness concerning c.i.f. price for companies’ profits and are considering of the contract pricing system, or price index, which can make the price changes with the spot price. However, global major steelmills all believe that the current pricing system witnesses the stable development of long-term benefits balance between the suppliers and demanders, which should be valued. And China Iron and Steel Association is always steadfast in their stand.

Fluctuation in near market

The growth of demands for iron ore in China accompanying the advancing of export-dependency can not appear an obvious turn in the near future, instead, the fluctuation is tending towards frequency.

According to some research, China’s imported iron ore in 1985 broke 10 million tons, and in 2003, the import figure has surpassed that of in Japan, making China as the world largest importer with an estimated import of nearly 150 million tons. Then the surging numbers cannot help stopping, 200 million tons in 2004, 326 million tons in 2006 and around 400 million tons in 2007.

Especially in the year of 2007, the iron ore price in China’s market sharply increased. The spot price of Indian ore fines with iron content of 63.5 percent climbed up 113 percent to 1450 yuan per ton from 680 yuan at the beginning of the year.

But by the end of last year and at the beginning of this year, iron ore spot market has showed a weakness along with the fewer purchasing from steelmills, totally, there is no market but price. After Spring Festival, some rising trend appeared and market revived. But in late March, the wave of purchasing gradually died out and the inventory of iron ore pressured the mills, the market had few deals as many wait-and-sees.

Besides, the international shipping price continued to slip down this year. The Baltic bulk index (BDI) in late Jan declined nearly 47 percent from the highest point of last year. While routes Brazil and West Australia even sharply fell by 47pc and 63 pc respectively. Though the index rebounded in the period of Spring Festival, fluctuation still exists by now. So it can be inferred the iron ore market is coming into a period of fluctuation and we can’t make blind decision based on the up-and-down market.

Gain the initiative strategy

Some insiders believe that it is the time that China should make the initiative strategy concerning the staple products such as iron ore and that kind of raw materials and the most important is to make out the long-term strategic rules not affected by the market fluctuation, and stick on all the way.

The rule should be ascended to the industry principle that can regulate the important investments of all steelmills. On the other hand, trans-sectoral mechanism is also needed to manage the resource investments.

Further more, we should have a clear way to go for overseas iron ore investments. The mainstream direction is to be one of the emerging suppliers in global market. Due to the traditional three iron ore giants are in an absolutely advantageous position, many small and medium-sized mining companies are striving to take actions so as not to be eaten up, hence the potential opportunities for investments can not be overlooked.