Beijing

During Beijing visit the group visited following locations:

i) Briefing of China Iron & Steel Association

ii) Visit to Shougang Iron & Steel Plant
iii) Visit to CCPIT
iv) Visit to Sanhe Thermal Power Plant
v) Briefing of China National Petroleum Corporation
vi) Briefing by the Indian embassy

The details of the above visit is brought out in paras below:

Metallurgical Council of China Council for the promotion of

international trade: CISA
Mr. Yang Zunqing, Secretary General and Director General of International
Corporation Department, CISA and Mr. Tao Huozhang, President, China Refractory
Industry Association did briefing by CISA on steel and refractory sector. The group
was informed about the

 Current status of China I&S industry

 Problems, which China faces in this segment
 Opportunities and challenges for China Iron & Steel Industry
 The iron & steel industry development policy.

Current status of Chinese I&S industry:

It was informed that output of crude steel in China has been ranking first in the world
for 9 years in a row. Production in the year 2004 was 272.97 MT and production in first
8 months of 2005 was 224.84 MT representing a growth of 31.87 % over the similar
period in the previous year. Further, it was informed that China has become the
world’s largest steel consumer, and a big importer as well as the exporter. The
apparent steel consumption during 2004 was 312.3 MT (actual consumption 272 MT
taking the double count). This accounts for 26.8% of the world’s total steel
consumption. China imported 29.3 MT of steel in 2004 with the following break up:

Flats – 25.1 MT – 85.66%

Wire & Rods – 1.38 MT – 4.7%
Pipes – 1.32 MT – 4.5 %
Angles - .8 MT – 2.7%
Rail Steel - .2MT - .65%
Others - .5 MT – 1.8%

China exported 14.2 MT in 2004; out of which flat accounted for 40% and Wire & Rod
accounted for 31%.

The next issue in the current status was accomplishment of product mix adjustment. It
was informed that China is trying to adjust its product mix by increasing the
percentage of high added value products thus CR sheets and other products will be
occupying more and more weight in their product mix and percentage of Bars, Wire
and other common products will become relatively lower than before (but still high
volume).

It was informed that as a result of these measures, profit of the whole iron & steel
industry in China have increased significantly. There are 89 large and medium sized
steel mills in China and the total industrial production value reached 935 billion RMB
Yuan, an increase of 52%. The sale income was 1005 billion yuan and profit before
tax of 137 billion yuan and profit after tax of 81 billion yuan.
Not only the profit, there was an overall improvement in techno economic indicator
also, as shown below:

Indicators 1995 2004 Comparison

Con. Cast ratio 46.4% 95.78% 49.38 percentage points
Yield 86.76% 95.6% 8.84 percentage points
Comprehensive En. 1.16 t 0.76t Reduced by 400% standard coal/ton
Cons
Comparable En. 0.973t 0.705t Reduced by 268% standard coal/ton
Cons

Coming to the different type of ownership it was informed that there are 871 steel
producers in China out of which state owned are only 107, private owned are 706 and
overseas owned are 58 in principle. The state owned 12% steel producer account for
56%of the steel producing capacity. Private owned 81% producers account for 39% of
the steel producing capacity, and with this the presentation shifted to the second
subject i.e.,

The existing problems in the development of China I & S Industry.

Following six problems were listed:

1. Unscientific production capacity layout

2. Low concentration rate of industry
3. Unscientific product structure
4. Enterprises are not well capable of making innovation independently.
5. Overcapacity of low end products
6. Extensive production is a feature of the industry.

The region-wise production capacity lay out is brought out below:

Eastern - 82.46 mt
Northern - 90.20 mt
Mid-South - 41.70 mt
North-East - 32.24 mt
South –west - 18.1 mt
Northwest - 7.76 mt

It is seen that 60% of the capacity are located in areas, which are short of water. It
was also seen that 18 producers are in provincial cities and 34 units are in cities of
population of 1 million. There is therefore, a growing pressure to environment
protection. It was also seen that there is low concentration rate of steel industry in
China. The first 4 producers’ output proportion in China accounts for 18% of the total
production whereas the similar figure for US are 61%, for Japan 75%, for Russia 67%,
for Korea 80% & for EU 73%. Going to the product mix, it was informed that there is
100% self sufficiency in products like large sections, bars, reinforcing bars, wire, ultra
heavy plate, heavy and medium plate, hot rolling, narrow slab, cold rolling narrow slab,
seamless pipe, welded pipe. However, there is close to 100% self sufficient in rails
and HR coil. However, there is low degree of self-sufficiency in products like GR coils
plating sheets, colour quoted sheets and electric steel.

Further, it was seen that enterprises in China are not fully capable of making
independent innovations. In 2004 only 20 billion Yuan (i.e. 2% of the current sales
income) were used for science and technology activities. Coming to the over capacity
of low end products, it was informed that even now 98 MT iron making is from 300 Cu.
Meter Blast Furnaces and that 34 MT production is from converters of capacity of 20
tons or less. Similarly, electric arc furnaces of 20 tones or below contribute to 21 Mt
production. The equipment and technology in all these small steel plant is backward,
energy consuming and polluting.
As a result of this, the comprehensive energy consumption per tone of steel is 15 to
20 per cent higher than the world’s advanced level. The effective utilization ratio of
thermal energy during the production process is about 30%. The recovery rate of solid
waste is 53% (which constitutes 16% of the total industry waste in China). Wastewater
and gas consist of 14% of the total industrial waste.

The opportunities and challenges for Chinese Iron & Steel industry.

It was informed that keeping in pace with industrialization, steel demand was
increasing for a long time. It may slow down and become stable at a later state (not
now). The future demand of steel products is anticipated in automobile, household
appliances, ship building, chemical industry, petrol and oil industry, railway and other
manufacturing industries. The social demand for steel products is characterized by
various levels e.g. by unbalanced development (urban & rural; eastern and western
etc.). The major constraints listed for the development include availability of iron ore
as 52% hot metal output depends on imported iron ore. During 2004, China imported
281 mt of iron ore.

Steel industry development policy

Further, it was felt that flat products are focused for market competition. China has
adopted a steel industry development policy recently, which consists of 9 chapters
with 40 articles. The relevant portions of the policy are brought out below:

On the technologies applied it is mentioned that CDQ, BF and BOF coal gas recycling,
power generation with coal, gas and steam [BF redundant pressure power
generation]; smoke, dust and slag recycling are all being planned. It is also envisaged
that the producers over 5 MT are required to be self sufficient in power supply such
that they are able to supply the surplus to others. Following goals are stated for the
year 2020:

2005 2010 2020

Comprehensive energy cons. (Standard coal) 0.76 t 0.73 t 0.7 t
Comparable energy cons. (Standard coal) 0.7 t 0.86 t 0.64 t
Fresh water cons. (Newly added) 12 t 8t 6t

Following technical thresholds are envisaged for green field construction project:

Sintering Machine : 180 square meters

Coke oven : 6 meters high
BF : 1000 cubic meters
BOF : 120 tones
EAF : 70 tones

The technical thresholds for construction of steel mills in coastal areas and for
integrated steel enterprise construction are as follows:

Constructions of steel mill in coastal areas:

 Annual capacity: 8 mt of crude steel

 BF : 3000 cubic meters
 BOF : 200 tones

Integrated steel enterprise construction:

Comprehensive energy consumption:

 0.7 tones of standard coal equivalent via BF process
 0.4 tones of standard coal equivalent via EAF process
 Fresh water: 6 tones via BF process;3 tones via EAF process and utilisaton
ratio of water recycling shall be more than 95%.
The policy envisages formation of alliances so that by 2010, the producer’s number
should reduce considerably and that the top 10 producers output should be more than
50% of the national total by 2010 and at least 70% by 2020.

Queries :

On some of the queries it was informed that the steel consumption is not linked not
only to Olympics but it is due to the continuous economic development, which is the
prime moving force for increasing the steel demand in China. To another question, it
was informed that China does not envisage itself to be a huge exporter of steel
producer as it is itself a major consumer. Per capita steel consumption is 150 kg per
man, which is much lower than the world’s standards. On a specific query, it was told
that stainless steel production of China (melting as well as rolling) is 6 million tones
per year.