July 18 MetalBIz--When waved farewell to the year of 2007, we are happy to greet a more flourish international bulk market in 2008. As we have seen in the first half year the international ocean freight market was the most prosperous driven by the global blooming economy. Three major ship market indexes broke the historical high point, showing more than 11400 points of BDI index in May, higher over 80 percent than that of in 2007.

Retrospect to the past 2007 and first-half 2008, vigorous demands of shipping iron ore were still the major impetus for the ocean freight market. However, China is changing to a net coal importer from a net exporter, which will bring profound influence on world bulk shipping market. Statistics shows the world’s total shipping of iron ore in 2007 reached 2.856 billion tons, increased 6.37 percent over the same period of last year. Of this total, iron ore shipping was 773 million tons, up 6.77 percent and coal shipping was 881 million tons, up 15.16 percent.

China Customs statistics displayed the country’s export of coal in 2007 was 53.17 million tons, declined 16 percent than the same period of last year, and that of coal numbered 51.02 million tons, largely increased by 33.9 percent. The annual import of exceeding 50 million tons for the first time is no doubt changing the status of trade distribution, forcing the Asian countries import coal from South Africa, Australia, even North America, which greatly increase the transportation distance.

The chain reactions of the above situation can be attributed to the fast growth of coal export in Australia while the loading capacity in the ports can not burden the pressure. So the contradiction between vigorous demands in international coal market and transportation infrastructures pushed the freight market on the upsurge. The Australian government allocated hundreds of millions funds last year to improve the transportation conditions nearby the ports, but it needs time. So the hoarding problem didn’t alleviate fundamentally in the first two quarters of 2008.

Viewed from market situation, at the time when Chinese government largely increased export tax of steel products, that of the coking coal and coke also advanced up. The export tax of coke ascended up to 25 percent from the previous 15 percent while that of the coal was cancelled. The government’s policy could make the country thoroughly change to a net importer of coal and further impel the adjustment of global coal trade pattern to a deeper extent.

Ocean shipping index and the annual average freight

Ocean shipping of bulk cargos

In the first half year of 2008, the price of power coal increased 100 percent, that of coke advanced up 200 percent and that of iron ore climbed 65-96.5 percent. Against the intense environment in coal, iron ore and freight markets, the end-users paid more and more attention on the usability of ship and cargo, which posed much pressure on the ocean shipping market. Therefore, the freight has consecutively broken the historical records.

Besides, given the huge profits gained by ship-owners from higher freight market, they will continue to make orders for building new ships more and more.

As for the third and fourth quarters this year, the ocean freight market could still maintain a high level, while add much more uncertainties. The transformation of China’s coal import may play a key role in the bulk cargo market. If Australia can increase the quotation of coking coal and power coal which could impetus the increase of China’s coal export, the ocean shipping market would go to another direction.

Statistics of bulk cargo shipping capacities in recent five years

July 17 MetalBiz--National Bureau of Statistics of China issued a research report recently that shows the steel export has declined with the slowing down of production since the fourth quarter of last year, mainly driven by the export policy adjustment and macro-control measures on production limitation. However, with the vigorous demand and soaring steel price, steel industry still gains better profits in the first half of this year, which is predicted to keep the growth momentum in production and profit in the second half year.

The production growth in steel industry began to slow down from the September of last year. In the first half of this year, the crude steel production in above-scale enterprises was 263 million tons, a year-on-year growth of 9.6 percent or 9.3 percentage points lower over that a year earlier, and the outputs of steel products was 300 million tons, up 12.5 percent or down 11.4 percentage points. If by month, the growth of crude steel was between 7%-11.5% and 11.7%-13.6% of the steel products. In terms of major varieties, the growth of plates, pipes, strips products was 17.4 percent, that of the longs (bars, wires, sections) was 6.9 percent.

The decreasing growth in steel industry is mainly due to the influence from costs and government’s policy. Since the second half year of 2007, raw materials of iron ore, coal, coke, scrap, pig iron has continuously shown the price hike. Most small and medium steel enterprises usually purchase by means of spot goods, so the added costs for them are higher than that of in large enterprises. With the increasing pressure, accompanying the coming Beijing Olympics, they have to cut down or stop production.

As we all know the Chinese government has decreased the export tax rebate four times on most steel products since the year of 2007 (on Apr.15, Jun.1, Jul.1 and Jan.1,2008), and also levied export tax on preliminary products, semi-finished products and some steel products. Therefore, the steel export began to fall down in May of last year and has appeared largely decline since this year’s February.

At the time of slowing supply of steel products, domestic market demand for steels is not lessened. In the first five months, the fixed assets investment in cities and towns was 4.0264 trillion yuan, a year-on-year increase of 25.6 percent, in which the real estate was 951.9 billion yuan, up 31.9 percent. The growth of apparent steel consumption reached to 16.7 percent in the same period, hit a new high in recent years, while the society stock and that of in steel enterprises are lower than the normal level.

At present, the steel price keeps hiking, so the steel industry can gain higher profits. As of the end of June this year, the integrated index of steel products in domestic market was 161.5 points, hit the historical high, 50.76 percentage point higher over that a year earlier. Of this total, the average price of 6.5mm wire rod and 16mm deformed bar was 5777 yuan/ton and 5552 yuan/tton, up 62.4 percent and 60.6 percent respectively, that of 0.5mm hot-rolled and cold-rolled sheet plates was 6439 yuan/ton and 7479 yuan/ton, up 35.1 percent and 38.3 percent. In the first five months, the above-scale steel enterprises have gained 97.09 billion yuan of profits, a year-on-year increase of 25.6 percent, occupying 10.5 percent in the new-added profits of the total industry.

The report pointed out steel industry would maintain a moderate growth in the next period. Although the increase of national economy could slow down, the basic condition can not change, along with the reconstruction work in snow disaster and earthquake-hit areas, demands for steel products will not obviously lessen. So it is forecasted that the production and profit of steel industry would be hopeful to keep increasing to some extent.

July 17 MetalBiz--Along with the booming deamnd for global resources, crude oil and natural gas prices keep soaring recently. General manager of OPEC denoted the oil supply will be raised by 9 million barrels per day to 2020 to ensure enough and stable supply of global oil products. However, the production of oil and natural gas needs a large number of steel products, especiall pipes including welded pipes and seamless pipes.

I. Crude oil price rocketing instimulate oil exploration.

The new round of economic growth is one of main reasons for rising deamdn of energy. Crude oil price in the end of June of 2008 broke $140 per barrel, more seven tems than that of 1995, up 170% from early 2007, rising 100% from the same period of 2007.

In order to guarantee long-term demand for oil, oil exploitatin in Saudi Arab, UAE, Kuwait, Qatar and Lybia was intensified. Up to 2010, OPEC can produce 39.7 million barrels per day, moving up 11.2% from 2007. The average daily supply growth rate from 2008 to 2010 is 3.5%.

II. Global demand for steel pipe in the coming years is predicted to raise 4 milion tons per year.

Prices hikes propel energy produers to intensify investments and expand productin so that a mass of seamless, weled cubings and pipelines will be used in the exploration, transportaion and process of oil and natural gas.

In the coming several years, the demand for stell pipe of global market is predicted to be about 4 million tons.

III. Tariff regulations change exported products structure.

Chinese steel pipe enterprises totally exported 9.36 million tons in 2007, accountng for 15% of overall exports.

In a long run, welded pipe exports kept declining from 2H of 2007 to Mar. 2008, but rose back in recent several months.

On the other hand, seamless pipes exports climbing up since June 2007, account for over 50% of total exports.

IV. anti-dumping probes of Chinese steel pipe increased, export market is facing challenges.

During recent years, China exports a lot of steel products. Anti-dumping and anti-subsidy investigations were also launched frequently. Therefore, NDRC has cancelled the export tax rebate of most of steel products. Steel pipe exports reduced apparently after the tax adjustment in June of 2007, and export structure started to show new characteristics.

China totally produced 7.4709 million tons of seamless steel pipes from Jan. to May, exported 1.9492 million tons, accounting for 26.1%. Cutting or calling off export tax rebate will take a great strike to domestic market under the high dependence on foreign trade.

America’s ITC ruled on June 20 the ring welded carbon steel pipe exported from China to U.S. damaged relevant sectors of U.S., which hit Chinese steel pipe companies heavily. America will levy high duty to the product in the coming five years. The anti-subsidy tax rate is 30%-616%, averaging at 37.2%, anti-dumping tax rate is 69%-86%. Canada’s CBSA is also launching anti-dumping and anti-subsidy probe to China’s welded steel pipe.

Losing North America market, China’s welded pipe exports will drop 1.5-2 million tons per year, which will inevitably pose pressure to domestic market. However, China accumulatively made 9.1779 million tons of welded pipes in the first five months of 2008, exported 1.273 million tons, or 14%, while that to North America market only accounts for 3.1%. The data shows the dependence degree on exports of welded pipe is far less than that of seamless pipes, indicating export market changes will bring few impacts to domestic market.

In all, the domestic market of welded pipe will witness a tight supply under the circumstance that exports haven’t reduced sharply, and price will be at high level. While the high dependence degree on foreign trade makes seamless pipe market controlled by what attitude the state to export market and what policy measures will be implemented.

July 16 MetalBiz—Since the settlement of 2008 iron ore price negotiation up to now, the steel prices hike brought by iron ore increase led downstream manufacturers to boycott firstly.

It is learned the price negotiation between Chinese auto makers and steel producers is in a stalemate to some extent. At the meantime, some auto firms in Europe, America and Japan have begun to resist steel prices hike and declared they would not accept the premium on the basis of current supply contract. Most of American steel enterprises, such as ArcelorMittal, U.S. Steel Corp, and AK Steel Corp., are also in a new round of talk with auto manufacturers including Ford, General Motors, and Toyota with a view to confirming the steel contract prices and clauses. 

At present, although the exact profits data of important downstream sectors of steel industry impacted by steel price rises is unknown, we can get some implications from the move of auto industry for repelling steel prices hikes strongly. That is auto manufacturing will turn to low-growth from high-growth in the second half year of 2008, downstream sectors will transfer or extend the pressure from costs to consumers, along with the soaring global resource and energy price.

We firstly analyze the auto industry.

The overall operation: exports in the first five months grew up rapidly; profits are as usual due to the stable prices. Three total amount indices from Jan. to May maintain a good rising momentum, firstly, domestic demand, which had a decline in its growth rate but still experienced a fast increase; secondly, auto production, which was 4.36 million tons in the five years, up 17.1%, relatively rapidly; thirdly, imports, which maintained a blowing growth, an equivalent of five times than that of home-made autos.

Industrial structure: growth rate of domestic demand for commercial autos is 17.8%, faster than 17.1% of riding vehicles. A relatively large conflict between planned high production and tightened demand since Q2 was formed. The productivity from the end of last year to this year is predicted to be 18%-20% while pressed to 15% as all auto makers want to hold more market shares.

Restricting elements: Oil price rose 17% and is predicted to further move up, which is a challenge against auto industry, especially for cheap and economic cars.

Manufacturing costs: rocketed quickly. Steel industry will transfer costs to downstream consumers due to current soaring import price of iron ore, which pose great pressure to auto manufactu