China’s steel production boom cooled a touch in November, while iron ore imports picked up and steel exports rose again.
Total November crude steel production came in at 47.3 million tonnes, down 8.7% from October’s 51.8 million tonnes, but up around 38% from a year earlier when China’s economy, like everyone else’s was slowing.
The fall in November output seems to have been driven by pressure from the Government to rein in what has amounted to over production in recent months.
But it would seem the higher cost of holding excess stocks of iron ore and coal (and other products) and financing unsold stocks of metal and product, may have forced the cutback.
Some analysts say the rise in steel exports in November is a sign the production cuts may be temporary, or merely window dressing to satisfy the government.
Some of the surplus stocks may have been pushed into world markets instead, as steel exports in November rose 6% to 2.87 million tonnes, up 115% higher than the lows in May.
China’s crude steel output in November is estimated to have reached 521.8 million tonnes in the January to November 2009 period.
But while steel output was trimmed, iron ore imports jumped in November, rising 12% from the lowish level of October, to return to more than 50 million tonnes.
They ended up at 51.1 million tonnes, a sign perhaps the cut back in steel production won’t be sustained for long.
The cumulative iron ore imports during January to November 2009 amounted to 565.86 million tonnes, up by 38.4% on the first 11 months of 2008.
This is all good news for Australian companies like BHP, Rio, Fortescue and some of the smaller players.
But the big issue next year (at least in the first half) will be the proposed BHP/Rio joint venture in the Pilbara.
That will be the continuing subtext to the rhetoric expected during the contract talks in Japan and China over the next few months for new 2010 deals.
Already there’s talk that the big companies (BHP, Rio and Vale of Brazil) want price rises of 20%-30% for the shipping year starting April 1.
China looks like rejigging its negotiating team, with major steel group Baosteel said to be ready to assume the lead negotiating position from the industry group, the China Iron and Steel Association which fluffed the 2009-10 talks, talking an aggressive line with BHP and Rio in particular (the arrest of the Rio executives led by Stern Hu was a prime example).
So far the Chinese steel groups, and the government, haven’t made any public comment, or briefed local media on prices and on their attitude to the BHP/Rio joint venture.
Opposition has come from the World Steel Association which issued a quick statement last week calling for the deal to be given tough treatment by competition regulators (i.e. in Europe).
In fact the WST and Eurofer, the European steel lobby group, called for regulators to examine the deal, claiming it will limit competition in the iron ore industry.
World Steel’s Director General Ian Christmas said in the statement that competition authorities should “thoroughly examine the impact of the proposed joint venture”.
He said the joint venture is “not materially different” from an earlier merger proposal by BHP and carries “a great danger of restricting competition”.
The deal finalised the weekend before last was a third version: the first was BHP’s hostile bid for Rio in 2008. That was abandoned 13 months ago.
(And that faced a probe from the European Commission, which cast “serious doubt” over the combination days after BHP abandoned the bid.)
The second was the June 5 proposal to merge the mining and transport and set up a separate marketing group in addition to the marketing groups inside BHP and Rio.
The venture agreed by the companies on December 5 “must be fully examined by the European competition authorities”, Eurofer said in a statement. The group “restates its strong reservations” over a deal that will “unavoidably lead to market concentration”.
The WST statement said "The World Steel Association (worldsteel) calls for competition authorities to thoroughly examine the impact of the proposed joint venture (JV) between Rio Tinto and BHP Billiton".
Speaking on behalf of steel producers worldwide, worldsteel Director General Ian Christmas said “The recently signed binding agreement between Rio Tinto and BHP Billiton is not materially different from the proposal issued earlier this year.
"It still carries a great danger of restricting competition thus reducing consumers’ choice as it would create an entity whose controlling position in the world’s seaborne iron ore market would become even less fair than the unsatisfactory position that exists today.
"The proposed JV would simply turn an oligopoly of three players into a duopoly.
“Competition makes a market strong and brings efficiency.
"Competition between steel companies has made the global steel market healthier and brought benefits for steel customers.
"As a result, this has promoted growth in steel use which serves society as a whole.
"We view this revised proposed JV as potentially extremely harmful to the market, and we call for a very careful review by all the relevant competition authorities.”
