Industry / market update:

  1. New Iron ore contract price (for 2009/2010) negotiation between China's Iron & Steel Association ("CISA) with Australian miners have not reached a win-win solution yet though the yearly contracted expired on 30 June 2009. China demanded 45% discount(from 2008/9 level) but the miners initially were permitted 20%. The negotiation will be on-going. China's iron ore inventory in major ports & steel mills of approximately 100 million tons is sufficient for another 3-6 months supply. It is expected that the negotiations to be amicable settled favouring CISA as many believe these miners are not willing to stop production or avoid sales revenue (because gearing level on the Australian miners incurred interest expenses).

  2. According to a report by CISA recently, in May09 80% (ie 72 out of 89 steel milles) of the country's medium-to-large steel mills recorded a combined profit of RMB 1.26 billion, this was the 1st month (of profit) since Oct08. It was reported that Apr09, these steel mills suffered losses of RMB 1.87 billion. With the figures, it showed that 1st 5 months of 2009, the aggregated losses suffered by the steel makers in China amounted to approximately RMB 4.0 billion (1Q09 their losses was RMB 3.3 billion).

  3. From Jan-Apr09, export of steel products dropped by 60%. On 1 April 2009, Chinese government increased the export rebate of cold-rolled coil, HR stainless steel & silicon steel from 5% to 13%. On 1 June 2009, another similar incentive was introduced, ie offer a 9% export rebate on hot-rolled steel products. We are hopeful to see the export of these steel products to increase in 2H09.

  4. For the first 6 months of 2009 China produced 266 million tons of crude steel, +1.2% growth y-o-y. It was reported recently that China became a net steel importer in 2Q09 (first time since end-2005). The average utilisation rate of major steel mills in China are running at between 70-90%. China's daily crude steel production hit 1.56 million in June 2009. In early-May09, Shanghai steel billet price was RMB 3030 & mid-July09 it reached RMB 3300 (+ 8.9% in last 2 months). The improvement of both steel demand (especially long steel products) and its prices is mainly because of the effective implementation of the RMB 4 trillion stimulus package.

  5. As for coke market in China, June09 the production of coke was 32 million tons which indicated a +6.6% growth y-o-y (witnessed pick up of coke demand). For the 1st 6 months of 2009, China produced 158 million tons of coke, -4.8% y-o-y. 1st 6 months of 2009, the export of coke dropped 96% to 230,000 tons only. It showed that the demand of coke in the domestic market has improved because its domestic market apparently is able to absorb the export quantity (In 2008, China exported less than 5% of its total coke production). In Shanxi, coke price has increased 20% since Apr09 to reach RMB 1700 in end-July09.

In 2Q09, China GDP recorded growth of 7.9% (1Q09: +6.1%). Also, the fixed asset investment rose 36% in 2Q09 (1Q09: +29%) and industrial output rose 9.1% (1Q09: +5.1%). These improvements bode well for the steel industry in China. It seemed that China's stimulus package has started to pay some 'interim dividend'.