wu wenzhang - shanghai steelhome

China De-capacity Guides Global Steel Industry Out of Dilemma

Deep Insight into China Steel Industry

Wu Wenzhang, Chairman, SteelHome

30 March 2017, Australia

SteelHome Profile

SteelHome Website is an authoritative, leading and independent website in Chinese steel market, providing information, consultancy, data, industry events and E-commerce to global steel companies, raw material suppliers, traders, logistics companies, steel users, government departments, industry associations, financial & research institutes etc. The number of registered members has been 250,000.

SteelHome is strategic partner of World Steel Dynamics, Bloomberg, Reuters. Almost all the big-scaled steelmakers subscribe SteelHome, using price, inventory, transaction, production, capacity, analysis etc.

SteelHome launched Internet Steel Exchange Cloud on 28 September 2015, which provides spot trading, online payment, supply chain financing, inventory management, warehousing and distribution, customer relationship management, office automation and market information.

SteelHome was listed in National Equities Exchange and Quotations on 17 December 2015.

XIII Steel Development Strategy Conference

BJ Zhuang Group Manager Business Develop Peter F Marcus, Managing Partner, Robert Williamson, Executive Consultant

Fortescue Metals Group World Steel Dynamics Association of Mining and Exploration Companies

Time: 21-23 April 2017 (Simultaneous translation will be provided)

Venue: International Convention Center, Shanghai, China

Who to Attend: Steelmakers, Miners, Buyers, Financial Institutions, Equipment/Technology Suppliers …

XIII Steel Development Strategy Conference, to be held on

21-23 April 2017 in Shanghai, will have sessions of steel,

iron ore, coal/coke. Welcome to hear industry experts’

voices, network with 800+ delegates, and showcase your

iron ore to 130+ steelmakers and around 300+ big trading

companies in and out of China.


Content

I China De-capacity Guides Global Steel Industry Out of Dilemma

II Outlook on 2017-2018 China Steel Market


1. In 2016, China’s steel de-capacity move made great achievements including shrank steel exports, redounded steel and raw materials prices and improved profitability of steel enterprises. China eliminated 51.5 mln tons ironmaking capacity and 107.5 mln tons steelmaking capacity in 2016. In 2017, Chinese government plans to cut another 50 mln tons crude steel capacity. China crude steel capacity will come down to 1 bln tons by the end of 2017.


China De-capacity Fulfillment in 2016

Source : SteelHome

China eliminated 51.5 mln tons ironmaking capacity, 107 mln tons steelmaking capacity in 2016. In 2017, Chinese government plans to curb another 50 mln tons crude steel capacity. China crude steel capacity will come down to 1 bln tons.

No. Regions Ironmaking Steelmaking No. Regions Ironmaking Steelmaking No. Regions Ironmaking Steelmaking

1 Tianjin 159 370 12 Jiangxi 50 433 23 Shaanxi 160 70

2 Hebei 1820 1554 13 Shandong 280 320 24 Gansu 160 144

3 Shanxi 82 0 14 Henan 100 240 25 Qinghai 50 50

4Inner

Mongolia 224.25 67 15 Hubei 60 754 26 Ningxia 0 20

5 Liaoning 60 652 16 Hunan 19.36 123 27 Xinjiang 0 90

6 Jilin 0 108 17 Guangdong 0 364 28Constructio

n Corps 25 30

7 Heilongjiang 219 610 18 Guangxi 20 185 29 Ansteel 0 20

8 Jiangsu 0 580 19 Chongqing 10.8 516.75 30 Baosteel 0 555

9 Zhejiang 110 388 20 Sichuan 197.5 497 31 WISCO 319 442

10 Anhui 222 314 21 Guizhou 257 220 32Xinxing

Ductile Iron Pipes

143 190

11 Fujian 0 445 22 Yunnan 406 406 Total 51.5 10757.75

China Steel De-capacity has Made Great Achievements in 2016


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China Crude Steel Production in 2006-2016 China Crude Steel Import & Export in 2006-2016

China Crude Steel Apparent Consumption in 2006-2016

The cumulative crude steel output by China had totaled 808 mln tons in 2016, edging higher by 1.2% when compared with 2015; steel export was 108.43 mln tons, down 3.5% yoy; steel import was 13.21 mln tons, up 3.4% yoy; apparent consumption of crude steel was 707.31 mln tons, up 2.1% yoy. The increment is mainly ascribed to the monthly statistics addition which was unreported in the past.

Source : NBSC , China Customs , SteelHome


price in RMB/t Mar-17 Jan-16 Up/downUp/down

%

Rebar 20mmHRB400 3859 1904 1955 102.7

HR 5.75mmQ235 3804 1913 1891 98.8

Iron ore Qingdao 62% 682 309 373 120.7

I GRAND COKE Hebei 1652 657 995 151.4

China Steel and Raw Materials Market Prices Rallied up Sharply

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-4

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Profit Profit Margin

China Major Steel Enterprises Performance Got Improved

In 2016, China major steel enterprises achieved profits of 30.378 billion yuan, 94.912 billion yuan higher from 2015, and profit rate was 1.1%, enhancing 3.4 percentage points.

Source : CISA ， SteelHome



1. In 2016, China’s steel de-capacity move made great achievements including shrank steel exports, redounded steel and raw materials prices and improved profitability of steel enterprises. China eliminated 51.5391 mln tons ironmaking capacity and 107.5775 mln tons steelmaking capacity in 2016. In 2017, Chinese government plans to cut another 50 mln tons crude steel capacity. China crude steel capacity will come down to 1 bln tons.

2. China will completely get rid of construction steel capacity of small steel mills running intermediate frequency furnaces and line frequency furnaces before June 30, 2017, expecting to phase out around 30 mln tons (mainly construction steel) supplies to domestic market, which will be offset by BF capacity.


Northwest

China, 242,

2%

North

China, 787,

7%

Northeast

China,

1274, 11%

Southwest

China,

2368, 21%

South-

central

China,

3240, 29%

East China,

3347, 30%

China Government Requests to Get Rid of ‘ditiaogang” Capacity in H1 2017

China to Eliminate Intermediate Frequency and Line Frequency Furnaces Construction Steel Capacity in 2016-H1 2017

Provinces IFF Capacity Provinces IFF Capacity

Hebei 780 Guangdong 1006

Inner Mongolia 7 Guangxi 735

Liaoning 1274 Hainan 40

Jiangsu 1550 Chongqing 527

Zhejiang 313 Sichuan 1360

Anhui 303 Guizhou 241

Fujian 930 Yunnan 240

Jiangxi 230 Shaanxi 52

Shandong 21 Ningxia 20

Henan 70 Xinjiang 170

Hubei 1044Total 11258

Hunan 345Source : SteelHome

Since August 2016, Chinese government strictly investigated production and sales of “ditiaogang” (unqualified steel products), requesting completely get rid of construction steel capacity of small steel mills running intermediate frequency furnaces and industrial frequency furnaces before June 30. According to investigations conducted by SteelHome, China’s intermediate frequency furnaces and line frequency furnaces construction steel capacity exceeds 100 mln tons, phasing out which will slash China domestic steel supply of around 30 mln tons.

Unit : 10000 tonsIntermediate Frequency Furnace Capacity Regional Distribution


1. In 2016, China’s steel de-capacity move made great achievements including shrank steel exports, redounded steel and raw materials prices and improved profitability of steel enterprises. China eliminated 51.5 mln tons ironmaking capacity and 107 mln tons steelmaking capacity in 2016. In 2017, Chinese government plans to cut another 50 mln tons crude steel capacity. China crude steel capacity will come down to 1 bln tons.

2. China will completely get rid of construction steel capacity of small steel mills running intermediate frequency furnaces and line frequency furnaces before June 30, 2017, expecting to phase out around 30 mln tons (mainly construction steel) supplies to domestic market. which will be offset by BF capacity.

3. China steel exports will decline in 2017, and international steel markets are expected to see supply shortage in H2 2017.


China Steel Exports Decline

Total steel exports during first two months of 2017 were registered at 13.17 mln tons, declining 4.56 mln tons or 25.7%yoy; annualized exports were 81.48 mln tons, down 26.95 mln tons or 24.9% from 2016. China’s excessive and backward capacity problem is most obvious for longs products, which means de-capacity will exert paramount influences on longs exports.

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China Steel Exports in 2015-2017 China Long Products Exports in 2015-2017

China Flat Products Exports in 2015-2017

Source : China Customs, SteelHome

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International Steel Markets are Expected to See Supply Shortage in H2 2017

International Steel Markets are Expected to See Supply Shortage in H2 2017

In 2017, non-China crude steel output is expected to reach 828 mln tons with increment of about 1%. Crude steel apparent consumption will drop 20 mln tons or 2.2% from 2016 to 900 mln tons, based on China’s crude steel net export annualized rate during January – February 2017; the figure in 2018 will see an increment of 30 mln over 2016.

Source :

WSA

SteelHome


1. In 2016, China’s steel de-capacity move made great achievements including shrank steel exports, redounded steel and raw materials prices and improved profitability of steel enterprises. China eliminated 51.5 mln tons ironmaking capacity and 107 mln tons steelmaking capacity in 2016. In 2017, Chinese government plans to cut another 50 mln tons crude steel capacity. China crude steel capacity will come down to 1 bln tons.

2. China will completely get rid of construction steel capacity of small steel mills running intermediate frequency furnaces and line frequency furnaces before June 30, 2017, expecting to phase out around 30 mln tons (mainly construction steel) supplies to domestic market, which will be offset by BF capacity.

3. China steel exports will decline in 2017, and international steel markets are expected to see supply shortage in H2 2017.

4. China eliminates medium frequency furnaces and line frequency furnaces construction steel capacity, the move will keep heating up iron ore and coke demand in short run, while scrap will see glut.


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China Scrap Oversupplied

China Scrap Output vs Scrap Demand from Steel Industry

In 2016, China’s obsolete scrap recycling rate has dropped to 28%. With the elimination of medium frequency furnaces and line frequency furnaces construction steel capacity , China will see supply glut in scrap, while BF capacity will increase 20-30 mln tons.

Source : SteelHome

II Outlook on China Steel Market in 2017-2018

1. China pledges to keep enhancing investment on infrastructure construction. Infrastructure construction together with manufacturing industry will be new growth points of China steel demand. China economic growth rate is predicted to be 6.5% in 2017-2018.

Outlook on China Steel Market in 2017-2018


Source : NBSC , China Customs ，SteelHome

China GDP Forecast in 2017-2018 China F.A.I Forecast in 2017-2018

China Foreign Export Forecast in 2017-2018 China Retail Sales of Social Consumer Goods Forecast in 2017-2018

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Source : NBSC , SteelHome

China Investment in Real Estate Development Forecast in 2017-2018

China Infrastructure Investment Forecast in 2017-2018

China Manufacturing Industry F.A.I Forecast in 2017-2018

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Real estate development investment: grew 6.9% in 2016; to up 5.5% in 2017 and 3% in 2018.

Infrastructure construction investment: grew 17.4% in 2016; to increase 20% in 2017 and 18% in 2018.

Manufacturing fixed asset investment: grew 4.2% in 2016; to grow 5% in 2017 and 2018.

Source : SteelHome


Real estate, 210,

29%

Other Buildings,

28, 4%

Infrastructure

Construction,

118, 17%

Shipbuilding,

12.5, 2%

Others, 68, 10%

Container, 2.5,

0%

Machinery

Industry, 154.5,

21%

Household

Electrical

Appliances,

11.5, 2%

Energy, 30.5,

4%

Hardware, 18,

3%

Automobile, 57,

8%

Real estate, 200,

29%

Other Buildings,

20, 3%

Infrastructure

Construction,

120, 17%

Shipbuilding,

11.5, 2%

Others, 65, 9%

Container, 2, 0%

Machinery

Industry, 155.5,

22%

Household

Electrical

Appliances, 12,

2%

Energy, 30, 4%

Hardware, 18,

3%

Automobile, 59,

9%

Real estate, 190,

27%

Other Buildings,

20, 3%

Infrastructure

Construction,

121, 18%

Shipbuilding, 11,

2%

Others, 65, 10%

Container, 2, 0%

Machinery

Industry, 156.5,

22%

Household

Electrical

Appliances,

11.5, 2%

Energy, 29, 4%

Hardware, 18,

3%

Automobile, 60,

9%

Prediction on China Steel Consumption in 2017-2018

1 mln tonsReal

estate

Infrastructure

Construction

Other

Buildings

Machinery

IndustryAutomobile

Ship

buildingContainer

Household

Electrical

Appliances

Hardware Energy Others Total

2016 210 118 28 154.5 57 12.5 2.5 11.5 18 30.5 68 711

2017e 200 120 20 155.5 59 11.5 2 12 18 30 65 693

2018e 190 121 20 156.5 60 11 2 11.5 18 29 65 684

2016 2017e 2018e



2. China steel production and consumption volume will be on downward trend in the future. China crude steel output in 2017-2018 is expected at 790 mln tons and 780 mln tons severally, while exports will remain at 90 mln tons annually. During the given time period, crude steel apparent consumption to be around 700 mln tons and 690 mln tons, decline slightly from 2016.


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Forecast on 2017/2018 China Crude Steel Output Forecast on 2017/2018 China Steel Import and Export

Forecast on 2017/2018 China Apparent Consumption of Crude Steel

Source : NBSC ,China Customs , SteelHome


1 mln tons 2016 2017 2018 17/16 % 18/17%

Crude SteelProduction

808.43 790 780 -2.3 -1.3

Steel Imports 13.21 13.2 13 0 -1.6

Steel Exports 108.43 90 90 -17 0

Crude SteelConsumption

707.31 700 690 -1 -1.4




3. China iron ore production will rebound to 1.3 bln tons in 2017 and imports to increase to 1.05 bln. Global iron ore market landscape will still be oversupplied.


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China’s Elimination of Backwards Capacity will Increase Iron Ore and Coke Demand

China Iron Ore Output in 2006-2017 China Iron Ore Impors in 2006-2017

In 2016, China iron ore output was 1.28 bln tons, down 3% or 39.62 mln tons from 2015; imported iron ore was 1.02 bln tons, up 7.5% or 71.4 mln tons. During first two months of 2017, accumulative iron ore output and imported iron ore were 184.16 mln tons and 175.34 mln tons severally, up 15.3% and 12.6%; annualized production and import in 2017 are expected at 1.3 bln tons and 1.05 bln tons respectively, up 1.5 percent and 2.5 percent.

China Iron Ore Demand to Keep Going up in 2017

Source : NBSC ，China Customs ， SteelHome

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4. China coke output in 2017 will be at 450 mln tons; exports to be 10 mln tons; coking coal imports will mainly keep the steady situation and at around 60 mln tons.


China Coke and Coking Coal Demand will Continue Growing in 2017

China Coking Coal Imports in 2006-2017

China Coke Production in 2006-2017 China Coke Exports in 2006-2017

Source : NBSC ，China Customs ， SteelHome

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1-2.2017

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Change Growth,%

Coke Production 6926 6621 305 4.6

Coke Exports 161 162 -1 -0.7

Coking Coal Imports 1185 633 552 87.2

10000 tons 2017e 2016 Change Growth,%

Coke Production 45000 44911 89 0.2

Coke Exports 1000 1021 -21 -2.1

Coking Coal Imports 6500 5923 577 9.7





4. China coke output in 2017 will be at 450 mln tons; exports to be 10 mln tons; coking coal imports will mainly keep the steady situation and at around 60 mln tons.

5. SteelHome predicts that China common hot rolled steel products mainstream price in 2017-2018 will run in the range of 3,000-4,000 yuan/t; China iron ore imported price will fall in the range of 60-90 US$/t.


Avg price (RMB/t) 2012 2013 2014 2015 2016 2017-2018

Rebar 4049 ( 643 USD) 3642 (587 USD) 3169 (519 USD) 2285 (368 USD) 2557 (388 USD) 3000-4000

HRC 4047 (647 USD) 3758 (606 USD) 3340 (547 USD) 2330 (376 USD) 2818 (427 USD) (435-580 USD)

Source : SteelHome



Avg price Unit 2012 2013 2014 2015 2016 2017-2018

Iron Ore Import Price USD/t 127.99 133.85 96.02 56.18 58 60-90

Domestic Iron Ore Price RMB/t 1041 1027 852 562 532 600-800

Conclusions

1. China has made great achievements in “de-capacity” including shrank steel exports, rallied iron ore and coking coal imports. China steel industry will guide global steel industry out of dilemma.

2. Infrastructure construction together with manufacturing industry will be new growth points of China steel demand.

3. In 2017 and 2018, China crude steel output and apparent consumption will still be on downward trend.

4. China iron ore and coking coal imports will be flat.

Thank you

Shanghai SteelHome E-Commerce Co., Ltd.

Securities abbr.: SteelHome; Stock code: 834583

Chinese Website : http://www.steelhome.cn/

English Website : http://www.steelhome.cn/en

Email : [email protected]

Tel: 86) 21 50585358 or 86) 158 0077 7957English website Chinese website