li xinchuang - china iron & steel accociation - status and trend of china’s steel industry

Status and Trend of China and

World Steel and Iron Ore Industry

China Metallurgical Industry Planning and Research Institute

PLAN FOR FUTURE STUDY FOR DEVELOPMENT

March, 2016

Contents

Ⅲ

Ⅳ

Ⅰ Macroeconomic condition and its implications for the steel industry

Interpretation and outlook of overcapacity elimination

Development of global and Chinese steel industryⅡ

China Metallurgical Industry Planning and Research Institute http://www.mpi1972.com

Supply and demand of iron ore market and price prediction

Ⅴ MPI----your reliable partner

ⅠMacroeconomic condition and its implications

for the steel industry

4

1. Economic situation

No effective

solution up to now

Recovery of world economy is fragile under the profound

adjustment. Due to existence of fundamental influence of

international financial crisis for long term, global economy and

trade will grow faltering, while protectionism will resume.

http://www.mpi1972.comChina Metallurgical Industry Planning and Research Institute

5

1.1 Macroeconomic situation

http://www.mpi1972.com

QE will postpone the problem rather than solve it.


6

Dark blue: countries with

GDP per capita lower than

25% of global average

Light blue: countries with

GDP per capita about

25%-50% of global

average

Light yellow: countries

with GDP per capita about

50%-100% of global

average

Orange: countries with

GDP per capita about

100%-200% of global

average

Red: countries with GDP

per capita about 200%-

400% of global average

Purple: countries with

GDP per capita higher

than 400% of global

average



7http://www.mpi1972.com

Chinese economy grew steadily and rapidly

by 9.2% annually from 2003 to 2015, among

of which 10.3% growth from 2003 to 2013.

China has become a dominant force

stabilizing global economic development.

Chinese economy grew fluctuated since the

financial crisis in 2008. After 10.3% growth

in 2010 driven by the investment, the

economic growth decreased continuously

to 6.9% in 2015, Economic growth in this

period took full play of comparative

advantage of low-cost competition. Due to

extensive growth in the same period, it will

be urgently to change the development

mode as well as to adjust the economic

structure.

The Chinese fixed asset investment

increased sharply from 2001 up to 2003,

and the annual growth was nearly 27% on

average from 2003 up to 2008. In 2009, the

fixed asset investment increased

significantly by 30.4% driven by the “ 4

trillion” and then decreased year by year. In

2015, Chinese fixed asset investment

increased by 9.8% only,



In 2015, Chinese urban resident

population was 771.16 million increased

by 2.2 million over the end of 2014, the

rural resident population was 603.46

million decreased by 15.2 million. The

urban population accounted for

56.1% of total. Urbanization plays an

important role in promoting economic

growth represented by accumulation of

productive factors, consumption

increase as well as development of

related industries driven by city

construction.

The proportion of added value of the

tertiary industry in GDP increased from

43.10% in 2011 up to 50.50% in 2015.

While the proportion of added value of

the secondary industry in GDP

decreased from 46.8% in 2011 to

40.50% in 2015, complying with

deepening of structural adjustment.http://www.mpi1972.com


8China Metallurgical Industry Planning and Research Institute

“ steel and coal industry, as pillar

industries, make great contribution to

Chinese industrialization. “

Since implementation of reform and

opening up, performance of Chinese

steel industry was improved

significantly driven by scale expansion

and quality improvement capable of

satisfying development of different

sectors such as construction,

machinery, energy resources,

automobile etc.

Chinese steel industry ,with half of

global crude steel production and

consumption, has changed the

development pattern of the world

steel industry comprehensively

and thoroughly.


1.2 Implications for the steel industry

9China Metallurgical Industry Planning and Research Institute


From 2001 up to 2005, steel consumption

intensity per unit GDP increased with

fluctuation mainly because of growth of

fixed asset investment.

From 2006 up to 2015, steel consumption

intensity per unit GDP decreased with

fluctuation mainly because of drop of

proportion of the secondary industry

and rise of proportion of the tertiary

industry.

Steel Consumption Intensity per unit

GDP in 2001~2015

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

单位

：吨

/万元

0

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0.15

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0.25

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0.35

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0.45

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：吨

/万元

Steel Consumption Intensity per unit Fixed

Asset Investment in 2001~2015

0.178

0.1440.098

0.441

0.120

From 2001 up to 2002, steel

consumption intensity per unit fixed

asset investment increased to 0.441

t/104yuan, and then the intensity

dropped to 0.12 t/104yuan in 2015.


1.2 Implications for the steel industry


11

1. 3 Chinese steel industry entering an era of reduction

Chinese crude steel output was 804 million

tons totally in 2015 decreased by 2.3% year-on-

year. Refer to daily production, Chinese steel

industry has entered the peak round since

2013, and decreased since 2015. With

development of national economy especially for

rapid growth of fixed asset investment, steel

consumption in China increased dramatically. In

2014, steel consumption in China was about 702

million tons. Due to New Normal of economic

development and strategic adjustment of economic

structure, the growth of domestic steel actual

consumption decreased in recent years. In 2015,

steel actual consumption in China was

664 million tons totally decreased by 5.4%

year-on-year. China Metallurgical Industry Planning and Research Institute http://www.mpi1972.com

12


Huge capacity(half of world production and consumption)

Important position (highly emphasized by governments at different levels

as a pillar industry)

Serious differentiation (big difference in technical level and profitability)

Reducing before powerful enough (carry out reduction and adjustment

before completion of industrialization and entering the rank of power)

Complicated ownership (coexistence of state, private, foreign and

collective)

Distorted environment (relationship between the government and market,

central and local government, as well as two departments; unfair

competition)


13


Long-term (difficulty in ten years or even longer)

Process adjustment (EAF, BOF; iron ore, scrap)

Export increase (domestic demand drop, while proportion of export

rise)

Survival of the fittest (the true powerful enterprise emerged)

Diversified operation

Innovative development (technical innovation such as internet

&intelligent, new energy resources etc)


14

智能化

服务化 ReductionInternationalization

Environmental friendly

Service oriented

Diversified operation

Quality first

(brand and quality)

Differential

Ordering

Intelligent



(4)

1.4 Steel is still the mandatory option for civilization

Steel has been and will be an important structural and functional material with

wide application due to abundant reserve, low cost, good performance,

developed production process and recyclable property.


ⅡDevelopment of global and Chinese steel industry

0

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2000年 2001年 2002年 2003年 2004年 2005年 2006年 2007年 2008年 2009年 2010年 2011年 2012年 2013年 2014年 2015年

单位

：万

吨

17

Review of world steel consumption

2.1 World steel consumption

From 2000 up to 2015, world steel consumption rose and then dropped slowly for two times.

From 2000 up to 2007, world steel consumption rose steadily year by year.

From 2008 up to 2009, world steel consumption dropped continuously due to financial crisis

worldwide.

From 2010 up to 2014, world steel consumption rose year by year thanks to recovery of world

economy.

In 2015, world steel consumption dropped due to sharp decrease of steel consumption in

China.

MPI predicted that the world steel demand will be 1.499 billion tons in 2016 with 0.9%

drop.

World Steel Consumption in 2000~2015

760 million tons

1.22 billion tons

1.15 billion tons

1.53 billion tons

1.51 billion tons



Steel consumption by regions and

countries in 2015

In 2015, world steel consumption was 1.513

billion tons, among of which Asia consumed

980 million tons accounted for 64.8%, Europe

consumed 188.1 million tons accounted for

12.4%, North America consumed 149.7 million

tons accounted for 9.9%, and Oceania only

consumed 7.4 million tons accounted for

0.5%.

Steel Consumption by Regions in 2015

0

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30000

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50000

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70000

中国美国印度日本韩国德国俄罗斯

单位

：万

吨

Steel Consumption of Main Consumers in 2015

Asia64.8%

Europe

12.4%

CIS3.3%

North Ameri

ca9.9%

South Ameri

ca3.0%

Africa2.5%

MiddleEast3.5%

Oceania

0.5%

In 2015, Chinese steel consumption was 664

million tons accounted for 43.9% of world

consumption. Steel consumption of the United

States was 108.1 million tons accounted for

7.1%, which occupied the second position.

And Indian steel consumption was 77.5 million

tons accounted for 5.1%. The steel

consumption of top 7 countries was 1.047

billion tons totally accounted for 69.2% of

world consumption.

2.1 World steel consumption


(4)

单位：百万吨

Development of world steel industry can be roughly divided into three stages since the Second

World War.

Stage 1: From the Second World War up to the beginning of 1970’s, the steel industry

developed rapidly for long term dominated by the Western countries.

Stage 2: From the beginning of 1970’s up to the end of 20th century, the steel industry grew

slowly and steadily with fluctuation under influence of oil crisis, economic restructuring of the

Western countries and disintegration of the Soviet Union.

Stage 3: The world steel

industry grew again since

2000 driven by rapid

development of Chinese

steel production and

consumption. The global

crude steel output increased

from 850 million tons to

1.665 billion tons within

about 10 years, among of

which 690 million tons

increase provided by China,

accounted for 85.2% of total

growth.

From our point of view, the

world steel industry will

enter the fourth stage

experiencing a long period

of adjustment.


2.2 World steel production


(4)

The global crude steel output was 1.6228

billion tons in 2015 decreased by 2.8%

year-on-year. Production of all regions,

except for Oceania declined.

Chinese output was 804 million tons

decreased by 2.3% year-on-year; output

in the United States was 79 million tons

decreased by 10.5%; output in Japan was

105 million tons decreased by 5%; output

in India was 90 million tons increased by

2.6%; output in Russia was 71 million

tons decreased by 0.5%; output in Korea

was 70 million tons decreased by 2.6%;

and output in Germany was 43 million

tons decreased by 0.6%.

The global crude steel capacity

utilization rate went downturn since

2014, which dropped to 64.6% in

December 2015.

2.2 World steel production


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Chinese Steel Consumption in

1980~2015

Review of Chinese steel consumption

702 million tons

From 1980 up to 2000, Chinese steel consumption rose slowly with fluctuation.

From 2001 up to 2014, Chinese steel consumption increased rapidly and hit the

historical peak value 702 million tons in 2014. But the steel consumption

decreased to 664 million tons in 2015 with 5.4% drop year-on-year, which was

the first time since 1996.

2.3 Chinese steel consumption



Chinese steel consumption by regions in 2015

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华北东北华东中南西南西北

单位

：万

吨

North China14.5%

Northeast8.8%

East China35.5%

Central

South

25.6%

Southwest

9.6%Northwest

6.0%

Chinese steel consumption by

regions in 2015

Proportion of regional

consumption in 2015

Chinese steel consumption was totally 664 million tons in 2015, among of which the

East China consumed 236 million tons accounted for 35.5% of total consumption,

followed by the Central South consumed 170 million tons accounted for 25.6%,

North China consumed 97 million tons accounted for 14.5%, and the North West

consumed 40 million tons only accounted for 6.0%.

2.3 Chinese steel consumption



2.4 Chinese steel production

Phase 1: Fluctuating

development in the

initial stage

Phase 2 (7.9% increase on

average/year):

Stable development in the

beginning stage

Phase 3(14.2% increase

on average/year): Leap-forward

development in the

accelerating stage

Phase 4: Innovative development in

the transition stage (transition period

from Phase 3 to Phase 4)


24

Chinese steel production mainly located in costal area

such as Hebei, Liaoning, Shandong, Tianjin and

Jiangsu Provinces, total output of which was 446

million tons accounted for 55.5% of national

output. Provinces with more than 100 million tons

(Hebei and Jiangsu) and 60 million tons crude steel

(Shandong and Liaoning) are located in this area.

In 2015, crude steel output of 20 provinces dropped

especially for the Central, West and Northeast.

Provinces in the Central and West occupied seven

positions of top 10 decline. Four provinces, among of

top 5 decline located in the West. The crude steel

output in Xinjiang dropped even by 39%.

There are six provinces

or autonomous regions

with more than 10%

drop such as Shanxi,

Xinjiang, Yunnan, Fujian,

Gansu and Jilin, crude

steel output of which

decreased by more than

1 million tons.

2.4 Chinese steel production


0

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吨

出口进口

During nearly half a century after 1949, China has been a net steel importer till 2006, when

we turn to be a net steel exporter. Up to 2014, the historically accumulated total export

exceeded that net imported for the first time. Chinese steel export expanded continuously

after the international financial crisis. In 2015, the net steel export reached 99.62 million

tons.Thanks to the improvement of

international competitiveness of

Chinese steel products, we

embraced a great increase of steel

exports. In 1979, Chinese steel

export reached 368, 000 tons, which

up to 112.4 million tons in 2015.

China won the international market

mainly by high-quality products,

excellent service and affordable

prices.

The change of steel import is

relatively stable. From 1979 to 2003,

steel import increased with

fluctuations. In 1980, China imported

5.01 million tons, which up to 37.17

million tons in 2003 hitting a new

record high. From 2004 to 2015, steel

import met fluctuant decrease, and

dropped to 12.78 million tons in 2015

with 11.4% decrease year on year.

2.5 Chinese steel import and export


26

Chinese steel import and export by countries in 2015

0

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韩国

中国台湾

德国

瑞典

其他

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：万

吨

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越南

菲律宾

印度尼西亚

印度

泰国

马来西亚

新加坡

土耳其

意大利

其他

单位

：万

吨

Chinese Steel Import by Countries in 2015 Chinese Steel Export by Countries in 2015

Import: In 2015, most of imported steel

came from Japan, which up to 5.482

million tons, accounted for 42.9% of total

import; South Korea ranked the second,

from which China imported 3.991 million

tons, accounted for 31.2%; Taiwan, in the

third position, exported 1.579 million tons

to China, and accounted for 12.4%.

Export: In 2015, South Korea is the biggest

importer of Chinese steel, which reached

13.492 million tons, accounted for 12.0% of

total export, followed by Vietnam, which

imported 10.148 million tons from China,

accounted for 9.0%. Philippines, the third

largest importer, to which China exported

5.609 million tons, accounted for 5.0% of the

total.


2.5 Chinese steel import and export



The profit margins of steel industry

continued to decrease to the bottom of

the whole industry, even at a record low.

•2001—2015, profit margins of steel industry

changed from a steady rise to rapid decline

since the financial crisis in 2008, there is a

sharp slowdown of sales profit in the steel

industry, not only far less than the average level

between 6-8% from 2003 to 2007, but also lower

the average standard of current national

industry

• In 2015, the profit margin of steel industry was

-2.23%, the lowest among major industrial

sectors, which was 10.88 percentage points

lower than that of the automotive industry. Even

for CITIC Pacific Special Steel Holdings, as the

most profitable unit, won merely 5.86% profit,

which only slightly higher than the average level

of manufacturing industry nationwide

Sales Profit of Related Industries in 2015

Sales Profit of the Steel Industry in 2001-2015

2.6 Profitability of Chinese steel industry



In 2015, fixed assets investment for ferrous metal

mining industry reached 136.572 billion Yuan, less by

32.44 billion Yuan with 17.80% drop year-on-year.

In 2015, among the 16 manufacturing sub-sectors,

only investment for the ferrous and non-ferrous metal

smelting and extruding industry decreased year-on-

year, with a decline of 11.0% and 4.0% respectively.

The ferrous metal smelting and extruding industry only

gained investment of 425.719 billion Yuan, ranking the

last but one, and accounted for 2.36% of investment

for the manufacturing industry.

Change of Investment for Ferrous Metal

Smelting and Extruding in 2005-2015

Investment for Related Industries in 2015

-15%

-10%

-5%

0%

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30%

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黑色金属及压延投资（亿元）增长率

-25%

-20%

-15%

-10%

-5%

0%

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15%

20%

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2015年投资总额（亿元）增长率

-40%

-20%

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黑色金属矿投资（亿元）增长率

Change of Investment for Ferrous Metal

Mining in 2005-2015

2.7 Investment for Chinese steel industry



Achievements in energy saving

After ten-year development during "the 11th Five-Year" and "the 12th Five-Year"

period, the steel industry made great achievements in energy saving. In 2015,

comprehensive energy consumption per ton steel production of key large and

medium-sized steel enterprises decreased by 17.60% comparing with that in 2005,

5.48% lower than that in 2010. During "the 12th Five-Year" period, energy saving of the

whole industry reached 27 million tons standard coal.

560

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700

2005年 2006年 2007年 2008年 2009年 2010年 2011年 2012年 2013年 2014年 2015年

单位

：kgce/t

7.78% 8.93% 9.67% 11.33% 12.82% 13.54% 13.11% 14.84% 15.75% 17.60%

2.8 Energy saving and emission reduction of Chinese steel industry



China executes the strictest

energy consumption standards.

China has been implementing

energy consumption limitation

management since 2007.

Energy consumption standard

was updated in 2013. The

implementation of Chinese

energy consumption limitation

policy embodies a high

attention of energy

conservation paid by Chinese

government. Chinese energy

consumption limitation per unit

production of steel and coking

industry is the most stringent

standard all around the world.

Energy

consumptionUnit Limitation

Permissio

n

Advanced

level

Coking kgce/t 155 122 115

Sintering kgce/t 55 50 45

Pelletizing kgce/t 36 24 15

Ironmaking kgce/t 435 370 361

BOF kgce/t -10 -25 -30




Performance of environmental

protection improved evidently

SO2 and dust emission per ton steel

production declined obviously from 1.7 kg

and 1.19 kg in 2010 to 0.85 kg and 0.81 kg

respectively at the end of “the 12th Five-Year”

Period.

Air pollutants

Total waste water discharge and waste water

discharge per ton steel production dropped

significantly from the 720 million cubic meters

and 1.64 cubic meters in 2010 reduced to 430

million cubic meters and 0.8 cubic meters

respectively at the end of " the 12th Five-Year "

Period.

Water pollutants

1.7 1.671.56

1.36

1.13

0.85

0

0.5

1

1.5

2

2.5

2010 2011 2012 2013 2014 2015

SO2 Emission per ton Steel Production (kg)

1.19

1.030.93

0.86 0.870.81

0

0.5

1

1.5

2010 2011 2012 2013 2014 2015

Dust Emission per ton Steel Production(kg)

7.2

6.25.6

4.9 4.94.3

0

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4

6

8

10

2010 2011 2012 2013 2014 2015

Waste Water Discharge (108 m3)

1.641.38

1.191 0.86 0.8

0

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2

3

4

5

2010 2011 2012 2013 2014 2015

Waste Water Discharge per ton Steel Production

(m3/t)

Solid waste

Solid waste comprehensive utilization rate

improved from 94.8% in 2010 to 97.5% in 2015,

and solid waste generation per ton per ton

steel production decreased from 618kg / t in

2010 to 585kg / t in 2015.

618

605615 612

591585

94.896 96.9 97.7

97.797.5

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640

92

94

96

98

100

2010 2011 2012 2013 2014 2015

Generation of Comprehensive Utilization of Solid Waste of Steel Companies

吨钢固废产生量,kg/t 固废利用率,%




Comparison of main environmental indicators

Baosteel and TISCO, as China's leading steel enterprises, adopt advanced environmental

technology with integrated environmental supporting facilities through each process, are in

the leading level in terms of the domestic environmental emissions indicators per ton steel,

on behalf of the benchmark for the green development of steel enterprise as well.

According to the data in above table, Baosteel and TISCO achieved the standard of SO2 and

waste water discharge even better than POSCO and Nippon Steel, except for grain and COD

per ton steel production, which left a certain gap with POSCO.

Emission indicators Bao Steel TISCO POSCO Nippon Steel

Waste

gasSO2（kg/t. steel） 0.43 0.5 0.75 0.47

Grain（kg/t.

steel）0.47 0.38 0.14 /

Waste

water

Waste

water(m3/t steel)0.55 / 1.32 /

COD (kg/t steel) 0.03 0.027 0.011 0.029

NH (kg/t steel) 0.0014 0.003 / /

Comparison of Main Environmental Indicators of

Developed Chinese and Overseas Companies




Comparison of main environmental standards

Germany France Brazil Austria

China

Newly built:

from 2012/10/1

Existing: from

2015/1/1/

Special emission

limits in key

regions

Grain（mg/m3） 20 100 70 10 50 40

SO2（mg/m3） 350 300 600 350 200 180

NOX（mg/m3） 350 500 700 350 300 300

Dioxin

（ngTEQ/Nm3）0.4 - - 0.1 0.5 0.5

Fluride

（mg/m3）

3

（refer to

HF）- - - 4.0 4.0

Comparison of Main Environmental Standards

Executed in China and Overseas Countries

As to the standards of main pollutant discharge such as particulate matter,

sulfur dioxide, nitrogen oxides etc., China's emission limits have reached or

even higher than that of developed countries such as Germany and France.

Supervision has also been launched for dioxins, fluoride and other pollutants,

and the emission limits are set either.



Ⅲ Supply and demand of iron ore market and

price prediction


Forecast of world steel consumption

From a long term perspective, as global economy gradually shakes off crisis effect and

recovery scope gradually expands, steel consumption demand will be driven gradually.

Especially for countries and regions apart from China, driven by industrialization and

urbanization, certain growth rate will appear which will offset the decrease in steel

consumption of China. It is estimated that steel demand in 2020 and 2030 will be 1.522

billion tons and 1.536 billion tons respectively.

With substantial decline in steel consumption in China, despite the increase in steel

consumption in emerging countries in Asia e.g. India, consumption in the whole area takes

on downward trend. In 2020, steel consumption in Asia will be 0.94 billion ton, which

decreased by 40 million tons compared with 2015. Up to 2030, consumption will continue to

decrease to 0.89 billion ton, which is 44.5 million tons fall-off. In other areas, there is

increase and decrease in steel consumption of, but total consumption changes a little.

World Steel Consumption by Regions in 2020 World Steel Consumption by Regions in 2030

94000

19320

608015940

5230 4920 5980770

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Un

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3.1 Forecast of steel consumption and production as well as iron ore consumption


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Forecast of Chinese Steel Consumption in 2030

702million tons in 2014

595 million tons in 2020




Forecast of Chinese Steel Consumption in 2020 and 2030

Chinese steel consumption hit the peak value of 702 million tons in 2014 and then

declined slowly. On the basis of down-stream industries analysis and GDP

consumption intensity, it is predicted that Chinese steel consumption will be 595

million tons in 2020, 552 million tons in 2025 and 492 million tons in 2030.



37

Unit: 104 t

Chinese crude steel production has been in the downturn after peak. Although peak round

and descending channel have appeared, fluctuation and rebound in individual year will not

be excluded. Pig iron production presents the same characteristics, and average declining

rate of output of pig iron in long period will be faster than that of crude steel with gradual

increase of scrap. From the perspective of long term, coke and iron ore demand is in the

transition period entering down going channel.

Based on the judgment that global steel consumption will maintain slight increase in the

next 5~15 years, considering the impact of declining demand of iron ore in China and of

increasing demand of iron ore in other areas, global iron ore demand in the future will

show a general trend of fluctuant declining, but will still maintain at a high level.





Australia, Brazil, South Africa and Ukraine are main iron ore exporters in the world.

In 2014, export volume of the four countries reached 1.2 billion tons, accounted for

81.6% of total export worldwide, among of which Australia and Brazil exported 1.1

billion tons, accounted for 74.5%of total export.

In 2015, iron ore export from each exporter in the world increased based on that of the

same period in 2014, among of which an increase of export volume of 21.81 million tons in

Brazil with 6.3% growth. It is estimated that export from Australia will increased by 6.1%, by

0.3% from South Africa and by 12.6% from Ukraine, while 37.3% drop from other countries.

Iron ore supply——Main exporter

3.2 Iron ore supply



Though China does not export iron ore, it is a large producer of it.

In 2015, output of raw ore of in China was 1.381 billion tons,

decreased by 7.7% year-on-year.

China’s iron ore resource endowment is poor, which results in high

production cost. Therefore some high – cost mines stop production

under low price at present, which resulted in the decrease of output

in 2015 compared with that in the corresponding period in 2014.

Since many miners invested large amount of money in the

construction period, they will not stop the production though

product price lower than production cost. Comparing with the iron

ore output in 2014, decline of iron ore output in 2015 was less than

the expectation.

Iron ore supply——China

3.2 Iron ore supply



Production expansion and

cost reduction

The Big Four all expanded

production in 2015, among of

which Vale increased by 4.3%

year-on-year, Rio Tinto

increased by 12.6%, BHP

increased by 8.2% and FMG

increased by 3.5%.

In 2015, the Big Four totally

produced iron ore of 1.007

billion tons increased by 67

million tons year-on-year with

7.1% growth.

Production cost of the Big

Four declined continuously.

At present, C1 cost of FMG is

15.8 USD/t with 53.3% drop

year-on-year. Notes: Summarized on the basis of annual report and quarterly report; output

corresponding to the stock ratio; output of Vale includes procurement of the third

party.

Iron ore supply——Big Four

3.2 Iron ore supply



Future development

Due to weak demand in China and sharp decrease of iron ore price, profitability of Vale,

Rio Tinto and BHP reduced significantly. Thus all of them regulated down the

production target of 2016, even so output still increase.

Affected by accident in Samarco, Brazil, iron ore output of BHP and Vale are expected

to be regulated down.

Release of production capacity of Big Four is nearing the end after investment in

around 2011. Due to no large scale subsequent investment in production expansion,

growth of iron ore output will also decline.

MinersOutput in 2015

（108t）

Planned output

in 2016

（108t）Remarks

Rio Tinto 3.10 3.50 Fiscal year; calculated on the basis of 100%.

BHP 2.33 2.37Fiscal year; calculated based on stock ratio; output

proposed to be reduced from 247 million tons to

237 million tons.

FMG 1.61 1.65

Vale 3.33 3.4~3.5Exclude procurement of the third party; output

proposed to be reduced from 376 million tons to

340-350million tons

Total 10.37 10.92~11.02 Iron ore output increased by 55-65 million tons.

Iron ore supply——Big Four

3.2 Iron ore supply



MinerOutput in 2014

（106 t）Output in 2015

（106 t）Future development

Anglo

American48.9 54.1

MinasRio project postponed to 2018; business

of iron ore of Kumba, South Africa possibly to

be separated.

Samarco 25.1 25.5Production stopped temporarily until 2018 due

to dam collapse.

Atlas Iron 12.7 12.2

Annual output kept at more than 10 million tons

introducing Corunna Down to replace Abydos

and Wodgina projects.

Cliffs 40.4 31.3 Running in loss; output drop.

Decrement: Samarco dam break accident caused suspension of production of 25

million tons. In the future, there will be 7 million tons quitted by Karara if without aid of

An Steel. England and America resource group will separate iron ore business, which

may prompt other high cost miners to speed up quitting.

Counterbalance: new project Corunna Downs of Atlas Iron will succeed the production

of old project.

Increment: Roy Hill iron ore project is being to be put into production, design capacity

of it will be 55 million tons / year.

Others: Running in loss, reduction of capacity and output such as Mount Gibson Iron,

Arrium Mining etc

Iron ore supply——other miners

3.2 Iron ore supply



At present, iron ore production cost in the world except for in China mainly consists

of mining, dressing, management and maintenance, tax and fees, freight etc. CIF of

the Big Four is lower than 35 USD/t thanks to large production scale, advanced

automation, high efficiency, no dressing required for DSO etc. The cost can be

affected by the following factors:

Constitution of Iron Ore Production Cost of Main Producers in the World

High labor cost

Improvement of strip

ratio

Drop of ore grade

Appreciation of USD

Cost

up：Cost

down：

Improvement of operation

efficiency

Reduction of energy cost

Depreciation of USD

Provisional measure

Iron ore supply——production cost structure

3.2 Iron ore supply



At present, besides tax, labor cost and capital expenditure, raw material cost only

accounts for a little more than 1/5 of cost of concentrate production in Chinese

mining companies, which represents that there is still a relatively large space for

cost reduction. Considering freight, grade and other factors of raw material supply,

some Chinese miners still keep on producing.

Reasons for concentrate production cost in China higher than that abroad are

explained as follow:

Production Cost of Ore Concentrate in Some MinersProduction Cost of Ore Concentrate

Heavy tax (25 types)

Extensive management

High cost for acquisition of land

and mining right

High financial cost

Poor endowment characterized by poor,

thin and miscellaneous

Generally small scale

Low industrial centralization degree

Low productivity

Iron ore supply——structure of production cost in China

3.2 Iron ore supply



Iron ore price prediction and supply pattern in the future——iron ore price prediction

Complying with the trend of weak demand and oversupply, iron ore cost will still run at low

level. But compared with last year, with gradual withdrawal of high cost miners with

representative of China and strategic adjustment of the Big Four, it is estimated that iron

ore price will fluctuate between 40~60USD / ton in 2016 ( possibility of short - term going

up or down from the range will not be excluded ).

The recent rise in price is short-term behavior, which mainly owes to stimulation of

macroeconomic policies and concentrated procurement of steel companies after spring

festival. And the price will gradually regress subsequently.

3.2 Iron ore supply



Overall: Oversupply will continue.

Main producing countries: Main producing countries are Australia, Brazil, China, India

and Russia. It is estimated that output share of Australia and Brazil will rise to 60% in

2016.

Main producers: The Big Four still hold an outstanding advantage of output over a short

period of time. In virtue of implementation of production expansion plan, capacity of the

Big Four will continue to release and share will still rise.

Iron ore price prediction and supply pattern in the future——world iron ore

production in the future

3.2 Iron ore supply


47

Year

Price

prediction

（$/t）Basis of prediction

2017 40～60

Output of the Big Four still increasing; many miners with high cost cannot withdraw from the

market in a short term;

The Big Four, with low cost, capable of bearing current price. CIF of Rio Tinto and BHP to

Chinese port is less than 30 USD/t, and CIF of Vale and FMG is less than 35 USD/t.

Iron ore price is difficult to be recovered due to serious oversupply.

2018 45～65

Factors favorable for price rise

Mines with high cost withdraw from the global market; and production expansion by the Big

Four has been nearly completed; a better condition for supply.

Overcapacity of Chinese steel industry is relieved to some extent; the downstream steel

price is likely to increase, which may drive rise of ore price.

Inflation, depreciation of US Dollar and other financial factors.

Rise of marginal cost of mines due to increased labor and environmental protection cost.

Freight may rise up along with recovery of global economy and increase of international

trade volume.

Iron ore supply has no big change and is highly monopolized by the Big Four, which may

take the opportunity to get more profit by limiting production slightly with help of the relation

of supply and demand so as to create the situation of tension supply and raise up the price.

Factors unfavorable for price rise Demand of steel and iron ore in China decreases gradually in the future; the new demand in other

countries can hardly compensate the decrease in China; iron ore demand in the world will show a

downturn in the future.

Oil price possibly at the low level.

2019

50～70

2020

3.2 Iron ore supply

Iron ore price prediction and supply pattern in the future——iron ore price prediction


Iron ore price prediction and supply pattern in the future——future development of

Chinese mining industry

Chinese miners will confronted with greater pressure with expected price of

40~60USD/T. Some high cost mines will be shut down, and output will be reduced

further.

Cost Reduction and Efficiency improvement: the mines in operation take cost

reduction and efficiency improvement as the core and take survival as the goal;

Survival of the fittest: high cost and less competitive mines will keep

withdrawing from the market; domestic output will be further reduced; it is

expected that domestic output of iron ore in 2016 will be 1.25 billion tons.

Policies support: Chinese government is likely to release a series of policies to

support development of domestic iron ore industry, including reform of resources

and taxes, enterprise restructuring and merger;

Special and differentiated development: make special and differentiated

development by diversified business and comprehensive utilization of resources.

3.2 Iron ore supply


Ⅳ Interpretation and outlook of

overcapacity elimination


（1）Starting stage （1999-

2004）

4.1 Review of overcapacity elimination of steel industry

Main task: remove steel making process by open-hearth furnace.

Important documents: to restrain low level repetitive construction, speed up restructuring

as well as promote upgrading of production process, equipment and products, the former

State Economic and Trade Commission successively released Contents of Eliminating

Backward Production Capacity, Process and Product (batch 1) and (batch 2) in 1999.

Main power: technical innovation and upgrading

Main achievements: On Dec 28, 2001, Baotousteel removed the last 500t open-hearth

furnace in production, which officially indicated seceding of open-hearth furnace from the

arena of history and marked the completion of the first step of overcapacity elimination.

As early as the middle of 1950s, discussion has

spread in ANSTEEL on “open-hearth furnace or

converter, which one is better?” The argument

has been going on for decades. In 1963, the first

30t converter in China was completed and put

into operation in Shougang, after which,

BXSTEEL and Panzhihua Steel also adopted the

converter for steel making. Compared with the

open-hearth furnace, the oxygen converter is

highly advantageous in smelting cycle, fuel

consumption, investment, operating cost and

smelting varieties. Steel making by the

converter developed rapidly, which speeds up

the weed-out of open-hearth furnace.



（2）Layout making stage （2004-2009）

Main tasks: remove the backward capacity of EAF and Converter with volume of 20t and less.

Important documents: Significant document: In 2005, NDRC successively released Policies for

Development of Steel Industry and Guidance for Industrial Restructuring. In 2006, the State Council

released Notice on Accelerating Industrial Restructuring of Over-capacity and proposed that steel capacity

is apparently excessive, conflict between resource and environmental restriction is outstanding and is

necessary to carry out restructuring. According to the Notice of Comprehensive Work Scheme for Energy

Conservation and Emission Reduction released by the State Council in 2007, it is proposed the task of

overcapacity elimination for the first time i.e. remove backward iron making capacity of 100 million tons

and steel capacity of 55 million tons in the period of “the 11th Five-Year Plan” Period.

Main power: guidance of national industrial policies

Main achievements: Due to lack of effective assessment means and mighty drive of market

demands, the large units develop and the small ones are not suppressed. Capacity replacement basically

stopped and elimination developed slowly in general. The task of elimination of backward is hardly

achieved.

During “the 10th Five-Year Plan” period, the crude steel output in China increased by 44.95

million tons annually with 22% growth. Low level repetitive construction in the steel

industry prevails and industrial concentration is low. Technical level and material

consumption far lags behind the international advanced level; the added value of products

is low; and the comprehensive competitiveness of enterprises is low. Chinese steel

industry shows a large scale but weak in development level for long term. It is requisite to

transform the development mode by elimination of the backward, technical upgrading and

restructuring so as to realize sustainable development of the steel industry.




（3）Standardizing stage（2010-2014）

Main tasks: remove BF with volume less than 400m3 as well as Converters and EAF with volume less than 30t.

Important documents: In 2010, Notice on Strengthening Elimination of Backward Capacity released by the

State Council pointed out: it is requisite to exert the role of market, take more powerful measures, make

comprehensive use of legal, economic, technical and administrative means if necessary to further establish and

complete the long-term mechanism for elimination of backward capacity and to guarantee realization of all goals

for eliminating backward capacity. In 2011, the Ministry of Industry and Information Technology, NDRC and other

18 departments jointly released Notice on Assessment and Implementation Scheme for Elimination of Backward

Capacity, clarifying the overall requirement on clear goals, complete organization, in-place responsibilities,

measures and supervision as well as level-by-level assessment to establish and perfect the task responsibility

evaluation, assessment and punishment/reward mechanism for elimination of backward capacity.

Main power: national administrative order for compulsory withdrawal

Main achievements: From 2010 to 2014, 118.11 million tons of backward iron making capacity and 89.66

million tons of steel making capacity was eliminated.

Elimination of Backward Capacity in 2010-2014

Year 2010 2011 2012 2013 2014 Total

Iron making（104 t） 4100 3192 1078 618 2823 11811

Steel making（104

t）1186 2846 937 884 3113 8966

Subsidies（104

yuan）79290 90570 30225 45060 178080

423225

Notes: data collected from the report jointly published by MIIT and the Bureau of Energy Resources; subsidies calculated on the basis of subsidy

limitation .



Most backward capacity features high consumption, high

pollution discharge and poor product quality. The nation has set

the specific policy limit and compulsory measures can be taken.

The promotion has wide social and public basis. Yet, “over-

capacity” and “backward capacity” are different. The economic,

technical, quality, consumption and pollution discharge indicators

of some capacity are not backward. Forcible reduction will

induce inimical emotion of enterprise. The legal basis and policy

support are insufficient. Elimination and removal work is in the

catch-22 situation of “can-not-do” legally and “must-do” in

actuality in current overall construction of rule-governing society.

Over years of elimination and reduction, the backward capacity

in all regions basically withdraws from the market, e.g. Hebei

Province has eliminated all backward capacity forbidden by the

national explicit order by the end of 2014. And the elimination

and reduction will become more and more difficult.


4.2 Features of overcapacity elimination



Enforce the environmental-protection, energy, quality, safety and

technical law strictly and draw the 5 red lines which are

compulsory to force the capacity violating law and regulations,

industrial policies and related standards to quit; guide steel

enterprises to develop with environmental protection, gain profits

by energy saving, seize the market by quality and brand, obtain

development assurance by safety production and lay

development basis on process technologies so that steel

enterprises will set foot on the sound and sustainable

development

Guide enterprise to proactively reduce and quit capacity by

capacity suppression, merger and restructuring, transformation or

change of the production line and international capacity

cooperation with help of perfect reward policies and smooth

withdrawal channels. The withdrawal emphasis shall be put on

shutdown or difficult-to-survive “zombie enterprises”. Enable some

of the capacity be laid to rest in the shortest time by special capital

reward/subsidy and government underpinning , and stop them from

revival when the market turns for the better.

4.3 Contents of file No.6 and withdrawal path


Execution is critical requiring in-place responsibilities,

measures, enforcement and supervision as well as level-by-

level assessment.

Underpinning relies on the governments; enterprises

cannot achieve it independently without government

coordination and support.

The market is fundamental; exert the main role of

enterprises and guarantee decision-making power of

enterprises.


4.4 Key points of overcapacity elimination



Highly emphasized by central government

4.5 Bright outlook

According to the statement of Central Economic Working Conference, overcapacity

elimination was defined as the first priority of main economic tasks in 2016, in which the

steel industry was highly emphasized. President Xi has raised the general principles of

overcapacity elimination several years ago interpreting as digesting, transforming,

merging and eliminating.



Overcapacity elimination should be executed together with deepening of reform, merging

and restructuring of enterprises as well as optimization and upgrading.

New capacity should be controlled strictly, backward capacity should be removed, stock

should be optimized, capacity utilization space should be expanded and employment

opportunities should be created.

4.6 Bright outlook

Highly emphasized by central government


Ⅴ MPI——your reliable partner

MPI——your reliable partner

59

Consulting headquarter of

government institutions

Guide in steel industry

Brain trust of enterprises

planning

Authorized qualification: MPI was established

under the approval of the State Council in1972, which is

one of the first engineering consulting institutes with First-

grade qualifications.

Excellent references: MPI has already finished

more than 4,000 projects providing service for more than

200 government departments, industrial associations, more

than 400 metallurgical companies and more than 50

overseas enterprises.

Human resources: The employees who have

obtained doctor’s and master’s degrees account for 90% of

the staff, those who have been awarded high-level

technical titles account for 70% of the staff, and those who

are state registered consulting engineers, senior

technicians or who enjoy special government subsidy

account for 50% of the staff.

60


Advantages of MPI

Familiar with market situation, clients’ requirements and

development of down-stream industries

Understand government policies

Rich experience in consulting of metallurgical industry

Energetic team with specialties covering whole

process of metallurgical industry

Strong innovative power, quick response, high efficiency

Client-oriented, wide range of contacts, integrated service

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Version

ExtensionPracticability

Velocity

Satisfaction

62


MPI’s clients

MPI’s clients

64

http://www.cnooc.com.cn/

http://www.cnooc.com.cn/

MPI’s clients

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http://tatachina.com.cn/index.html

http://tatachina.com.cn/index.html

http://www.essarsteel.com/default.aspx

http://www.essarsteel.com/default.aspx


Consulting headquarter

of government

institutions

MPI undertook basic

research of preparation of

development plan of steel

industry from the 5th Five-

Year Period up to the 12th

Five-Year Period. MPI also

participated in formulation

of important industrial

policies such as

Development Policy of the

Steel Industry, Adjustment

and Rejuvenation Plan of

the Steel Industry etc. MPI

has assisted MIIT

completing the research on

formulation of development

plan of the steel industry in

the 13th Five-Year Period.


Guide in steel industry: MPI takes lead in China in carrying out market investigation and medium and long

term demand forecasts of the iron and steel products. It also organizes the drafting of the Provisional

Regulations for Feasibility Study and Economic Assessment of Investment Projects in Iron and Steel

Industry and Technical and Equipment Policy for iron and steel industry.

Brain trust of enterprise planning: MPI has already accomplished over 4,000 cases of general planning

and consulting services for hundreds of large and medium metallurgical enterprises. MPI participated in

planning and research of major domestic steel projects such as Caofeidian of Shougang, Bayuquan of An

Steel, Zhanjiang of Bao Steel, Fangchenggang of WISCO etc, as well as completed five-year development

plan for many Chinese steel companies.

Specific plan helping companies to improve competitiveness

New business fields include: green development plan, environmental diagnosis, research on One

Belt One Road and going abroad of steel enterprise, further processing plan, diversified business

development plan, research on cost reduction and efficiency improvement, logistics optimization,

management improvement, intelligent manufacturing, E-commerce, mechanism reform, human

resources optimization etc.

Development plan in the 13th Five-year Period

Since the end of the 12th Five-year Period, MPI prepared strategic development plan in the 13th

Five-year Period for many steel companies such as WISCO, HBIS, Shandong Steel, Benxi Steel,

Baotou Steel, Shaanxi Steel, Valin, Rockcheck, Guizhou Steel Rope, Huinan Steel etc.

68




International cooperation and serviceMPI has provided such consulting service as market research, feasibility study and equipment

purchasing for Singaporean, Indonesian and China’s Taiwan and Hong Kong companies who wish

to establish joint ventures or solely foreign founded enterprises in China. MPI have provided

service and participated in the research of such projects as the construction of Zimbabwe steel

plant, Australian direct reduction iron project, Malaysia and Indonesia’s technical service. In recent

years, MPI participated actively in consulting of national development plan together with China

Development Bank carrying out site investigation in Australia, Africa, South America, CIS,

Southeast Asia etc, in order to provide reference for decision-making.

▲President Li Xinchuang had a conversation with

Cameroon mining minister.

▲ President Li Xinchuang had a conversation with

Venezuela mining minister.


China Steel Series Report

China Steel Series Report is a kind of industrial consulting report sincerely prepared by

MPI on the basis of rich experience accumulated from more 1800 cases including

annual and quarterly forecast report, market analysis report of long products, plate and

pipe, as well as market analysis of iron ore, coke, non-ferrous metal and ferroalloy.

Information service

MPI provides additional information service for customers of China Steel Series Report

including monthly report, daily highlights, industrial observation etc to ensuring more

convenient and comprehensive service.


High-end forums

MPI organizes five forums such as China Steel Planning Forum, China Steel Energy Saving and

Emission Reduction Forum, China Steel Technical and Economic Forum, Steel Industry Diversified

Business Development Conference and High-end Forum of Iron Ore Development.

Thank you for your attention

！

Address: http://www.mpi1972.com

[email protected]

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