China demonstrating growing influence over global steel industry - Fitch |
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Wed, 10 Jan 2007 09:19
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BEIJING (XFN-ASIA) - Fitch Ratings said the success of Baoshan Iron and Steel Co (Baosteel) -- the sole representative for Chinese steel makers-- in settling the benchmark price for iron ore is a sign that China is determined to improve its influence in the global steel industry.The early settlement of the iron ore price by Baosteel, with a 9.5 pct increase from 2006, will also be positive for market participants in terms of eliminating uncertainty, Fitch said in a statement.'China's steelmakers have shown strong resolve in their bid to lead the steel industry in their recent negotiations for the contract price of iron ore,' the statement said.The ratings agency noted that the decisive and highly efficient negotiation process may be seen as China's reaction to the announcement that the world's second and third largest steelmakers, Japan's Nippon Steel and South Korea's POSCO, will hold joint discussions with iron ore providers to leverage their buying power.Fierce competition among global steelmakers and the ongoing imbalance between demand and supply led to the new contract price being struck at the top end of the forecast range of 5-10 pct, Fitch said, adding that the move has benefited major upstream iron ore suppliers.'This benchmark will turn out to be the de-facto global standard, which indicates Baosteel's growing importance in the negotiation process and reflects its delegated authority from the Chinese government, as well as cohesion between the various industry bodies to achieve a unified stance representing China's steelmakers,' Fitch associate director Danny Chen said in the statement.'This will help to support China's credibility as a leading player in the global steel sector,' he added.China's steel mills have intensified domestic iron ore mining to lessen their dependence on imported ore, but the low iron content of Chinese ore means that the country will remain heavily dependent on imports, even though the dynamics of supply and demand will be more balanced in 2007 and into 2008, Fitch said.The agency added that it expects China's crude steel output to be 480 mln tons this year, up 15 pct from 2006, implying an additional 80 mln tons of demand for iron ore.Citing the China Iron and Steel Association, Fitch said China is likely to import 355 mln tons of iron ore in 2007, up 10 pct from a year earlier.Raw materials prices for iron ore, coking coal and electricity have risen consistently for the last three years, but the impact should remain manageable for China's major steel companies, Fitch said.The 9.5 pct hike in the iron ore price will only raise production costs by 60 yuan per ton, or reduce gross margins by less than two pct, it added.The impact will be cushioned further given the likely ongoing appreciation of the yuan, Fitch said.But the rating agency noted that the Chinese steel market will be affected by some unfavorable factors in 2007, including new production capacity coming on-stream, rising trade tensions over steel exports and tightening macroeconomic policies in the Chinese real estate market.(1 usd = 7.8 yuan)will.davies@afxasia.com
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