Competition heats up in steel industry as China seeks refined products

As China hopes to begin producing value-added products in the coming years, the communist country`s steel sector may further turn up the heat on the competition, Chinese steel representatives said yesterday at a meeting of global steelmakers.

"We expect China to begin making more refined steel products in the near future," said Yang Zunqing, a senior executive at China Iron & Steel Association.

He told The Korea Herald that although he was uncertain of how high China could rise in the global steel industry ladder, value-added products would most likely mark out the next step for the communist country.

Yang was attending the annual meeting of the International Iron and Steel Institute formed from more than 30 global steelmakers.

He represents a country that is dominating the global steel market with cheap, lower-quality products that have forced leading steelmakers, including Korea`s POSCO, to cut their prices.

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The world`s fifth-largest steelmaker last month slashed prices on nearly a dozen products to match falling global prices triggered by China.

Addressing fears about China`s ballooning supply, the Chinese executive tried to downplay them, saying that the government is strongly committed to forming "friendly and healthy" relations with other countries to resolve the issue. He also viewed the government-led reforms for its steel market to be a due process.

"The new policy is about changing the steel industry to become more environmentally friendly and more energy-conservative," said Yang.

China currently reigns as the global leader in both supply and demand, soaking up 30 percent of worldwide crude steel supply last year. This year, it is expected to show the strongest growth in global demand of 340 million metric tons, which reflects a 10 percent on-year increase.

But global steel representatives continued to express jitters over China`s reforms that may undermine rivals` competitiveness with the creation of bigger, stronger steelmakers.

China`s restructuring mostly involves eliminating nonviable players and merge smaller manufacturers. Exports also will be limited.

While acknowledging the problems the new policy may impose on the global steel market, experts said more time would be necessary to feel an impact.

"I think it will take longer (than expected) to engineer consolidations in the steel sector because smaller mills are receiving extensive support from provincial governments. So exports will also continue to climb, certainly over the course of 2006 and 2007," said Nicholas R. Lardy, a senior fellow at the U.S.-based Institute for International Economics.

He and other experts said that China`s recent membership in the steel institute may lead to more dialogue to help resolve issues concerning its steel sector reforms and over-capacity.

Despite its leading position in the market, China only recently joined the international association. This marks its second meeting.

On the sidelines, European steelmakers expressed strong interest in investing in Korea.

Elisabeth Nilsson, president of Jernkontoret, a Swedish association of steelmakers, said that some view Korea to be a more desirable investment destination.

"Giving consideration to the favorable business conditions there that have further improved with the recently-improved relations with North Korea, South Korea is an attractive place for investment," she said.

Whereas China is yet an unproven market, Korea has more stability to offer, she said.

(jemmie@heraldm.com)











By Kim Ji-hyun