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Chinese Steel Industry– An Overview
D. A. Chandekar
The last decade saw the emergence of China as one of the major players in global steel industry. In the next decade, it is believed that China will be the ‘Super power’ of global steel industry.
Today, China produces around 150 million tonnes per year and over and above this imports a substantial quantity. This takes Chinese steel consumption near 170 million tonnes per year. Infrastructural development is one area where China scores over most of other developing countries. You can see a lot of tall cranes all along the skyline of Beijing employed for new construction activity. Also, the city is gearing for 2008 olympic games. In this era of globalisation, langauge remains a major negetive point for China. Majority of operating people are not conversant with english. But now the scenario is changing gradually. I was told even the taxi drivers are instructed to learn english in view of forthcoming Olympic games.
The steel user segments like infrastructure and auto industry are also witnessing a strong growth rates. The major development in China is supposed to be concentrated in the coastal region and the interior country is yet to undergo this process. Also, the auto sector, which today consumes only about 3 % of steel output, is expected to grow rapidly. It is interesting to note that in a fully developed economy like USA, about 25 % of the steel output directly or indirectly goes into auto industry. It is expected that Chinese steel consumption will continue to rise for next few years at a speed of around 10 million tonnes per year. Isn’t this a huge growth rate ? If this trend continues till 2010, Chinese steel production would be somewhere near 235 million tonnes. Incredible !!! It may be noted here that China has huge iron ore deposits but are of low grade and can not be used in many cases. Thus Chinese iron ore imports are expected to rise in line with its steel production in coming years. Another area which is likely to grow is steel service centre segment. These centres are expected to play a major role in steel processing as well as distribution in the future.
Now, China has joined WTO and there seems to be quite a lot of anxiety in the minds of Chinese policy makers about how the industry will respond to globalisation and the enhanced competition which follows. Now, Chinese steel industry is undergoing structural changes and is implimenting technology upgradation programmes to make it compatible with WTO norms. Also, a lot is being discussed about environment protection measures. Eco-friendly production and process technologies are being preferred and there is a serious attempt to minimise pollution as well as consumption of energy and water. The steps to modernise production, safegaurd the quality and to expand the product range are being taken to ensure ‘realistic foundation for sustainable development’. There is also an increasing awareness for investing in R & D activities. Currently, it is estimated that Chinese steel industry invests around 0.9 % of the total operating income into R & D activities. In the year 2000, only 84 enterprises out of total of 2655 invested more than 5 % of their operating income. As per the international norms, the companies investing less than 2 % in R & D activities will find it difficult to survive and thus efforts are being made to increase the expenditure in this area. The labour cost in China is low at around US$1.50 as compared with other developed countries. But this edge is lost due to the fact that Chinese steel company generally has more workers as compared to west. Another point worth mentioning here is that the cost to build a steel plant is much lower in China as compared to other developed countries. It is said that you can save as much as 60 % due to cheaper technology and equipment, cheaper energ cost and also cheap labour.
‘CISA International Steel Congress’ was attended by not less than 300 top executives of not only Chinese but also from other parts of the world. Also in ‘Metallurgy-China 2002’ exhibition, there were more than 700 exhibitors covering all the segments such as steel plants, foundry, forgings, metal forming etc. and countless visitors. The industry sentiment there is very positive and vibrant which makes such events an important destination for all steel related business houses. One can explore numerous opportunities like trading, collaboration, joint venture, technology transfer and so on.
1) High Demand growth :For last so many years, the country is showing high growth rates in most of the sectors like steel, auto, infrastructure etc.
2) Government Ownership : Although, there is a trend for greater autonomy, as on today, even the companies whose shares sell on stock market, are controlled by government.
3) High Imports : In spite of high production, China imports huge quantities of steel. The main items being stainless steels, iron ore, special quality HR & CR coils etc.
4) Average product quality : The quality of Chinese products is not rated too high. It is average coupled with low price.
5) Needs technological upgradation : Many steel mills in China use conventional steel making process such as open hearth. Only 25 % of Chinese steel is produced through EAF. Now the government along with individual mills are making lot of efforts to upgrade the processes, induce automation etc.
6) Highly competitive prices : The main reasons being low employment cost ( US$ 1.5 per hour ), high scale of operation and low power cost (less than a rupee per unit) It is also said that China offers lowest cost to build steel plant ( 40 % less than European cost)
The Chinese steel production is expected to add more than 10 million tonnes every year and reach around 250 million tonnes by the year 2010. If this happens, it will have an adverse impact on the economies of other countries as their domestic industry will not be able to compete with Chinese products either in their own country or in the international market. Some analysts argue that such a consistant growth in highly unlikely and there will be a balancing trend in next few years. Such a negetive trend may start after the 2006 Olympic games in Beijing.
As regards Indian industry, our export for China consists of special quality HR coils, CR coils, Stainless steel products, iron ore etc. We import metallurgical coke, semies etc. In future we can expect higher volume of iron ore and HR coil exports. Lot of stainless steel products such as forgings, castings, bright bars can get exported. Also, one of the untapped areas is technology transfer. Chinese technologies / processes are supposed to be cost effective and suitable for Asian environment. These may replace high cost European or American technologies in coming years.