Events/ Activities

JULY 2010

FROM Secretary General The full impact of the global economic crisis was felt by the steel industry in ASEAN in the first half of 2009. Although steel demand started to pick up towards the later part of the year, the industry in the region still suffered a significant drop in steel consumption in 2009. The 2010 SEAISI Steel Statistical Yearbook reveals that apparent steel consumption in Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam totaled 41.7 million tonnes in 2009, a drop of 9.6% over the historical high of 46.2 million tonnes recorded in 2008. Thailand barely managed to maintain its position as the top steel consuming country in ASEAN in 2009. Its total consumption of 10.8 million tonnes for the year represented a steep drop of 20% over the total of 13.5 million tonnes consumed in 2008. Vietnam, on the other hand, witnessed a sharp surge in steel consumption in 2009, totaling 10.6 million tonnes, a 30% increase year-on-year. Vietnam, in fact, was the only country in ASEAN that registered a positive growth in steel consumption in 2009. All the other countries, with the exception of Philippines, suffered double-digit drops in steel consumption for the year. Indonesia’s steel consumption declined 16% year-on-year to 7.4 million tonnes in 2009 while Malaysia registered a sharper drop of 20% to 6.6 million tonnes for the same period. Percentage wise, Singapore suffered the biggest drop, with its steel consumption tumbling by 23% to 2.8 million tonnes in 2009. Philippines, on the other hand,

registered only a marginal drop of 1.2% in steel consumption to 3.5 million tonnes in 2009. As a consequence of the drop in steel demand, steel producers in ASEAN also cut back on their production in 2009. Total crude steel production in the region declined by 13.5% to 16.7 million tonnes. However, production of hot-rolled steel products only dipped marginally by 1.9% to 24.5 million tonnes in 2009. Total import of iron and steel products in ASEAN, on the other hand, declined sharply by 19.6% to 35.3 million tonnes. The share of imports attributable to intra-ASEAN trade remained unchanged at a low 11%. An examination of the composition of import of iron and steel products by the ASEAN countries revealed that the region continued to rely heavily on the import of semi-finished steel for its hot-rolling activities. In 2009, ASEAN’s import of crude steel, comprising mainly billets and slabs, totaled 9.6 million tonnes, almost the same quantum as in 2008 (9.8 million tonnes). Imports of hot-rolled plates, sheets & strips were also significant, at 9.6 million tonnes, while imports of cold-rolled sheets & strips and coated sheets stood at 4.0 million tonnes and 3.0 million tonnes respectively. Thailand remained the largest importer of iron and steel products in ASEAN with total imports of 9.5 million tonnes in 2009, albeit a drop of 25% compared to 2008, followed by Vietnam (9.0 million tonnes), Indonesia (6.1 million tonnes), Malaysia (4.0 million tonnes), Singapore (3.8 million tonnes) and Philippines (2.8 million tonnes). Japan exported a total of 7.8 million tonnes of iron and steel products to ASEAN in 2009 and maintained its position as the biggest source of import for the region. This was followed by China with total exports of 5.4 million tonnes and South Korea (3.7 million

tonnes). Russia emerged as the surprising fourth major source of import for ASEAN with total volume of 3.4 million tonnes followed closely by Taiwan (3.3 million tonnes). The depressed market condition in 2009 also led to a sharp decline of steel exports from ASEAN. Total export volume for the year was 8.3 million tonnes compared to 11.8 million tonnes in 2008, a drop of 30%. All the ASEAN countries saw their export volume reduce substantially except Malaysia, which recorded a surge in export from 2.8 million tonnes in 2008 to 3.3 million tonnes in 2009. For detailed information on the production, consumption and trade statistics of the six ASEAN countries as well as Australia, Japan, South Korea and Taiwan, make sure you get hold of a copy of the 2010 SEAISI Steel Statistical Yearbook. - Tan Ah Yong -

Events/ Activities

2010 Training Programme Theme: 6-Sigma Application In Developing Quality Steel Products By POSCO Venue: Korea Date: 18-22 Oct 2010

I N T HIS I SSUE: PAGE PAGE PAGE PAGE PAGE

2: Krakatau, Posco to sign mill jv agreement next week 6, 7: Philippines government decision on removal of coil import tariffs. 10: Russian AD duty will displace Asia-origin exports to other markets 11: SteelHome Analysis on Export Rebates Removal’s Impact on Steel Industry 15: Brief on ASEAN Steel Industry Performance in 2009

SEAISI Newsletter, July 2010

Publisher: SEAISI

Editor: Pichsini Tepa-Apirak Email: [email protected]

Contributing Editor: Josephine Fong Printer: Yeohprinco1 Sdn. Bhd. Tel: 603 55191102 Fax: 60355191159 Website: www.seaisi.org

Contents Message from Secretary General ............................................... 1 Events/ Activities ....................................................................... 1 Grange-BlueScope agree 107% rise on pellet benchmark .......... 2 Krakatau, Posco to sign mill jv agreement next week ................. 2

AUSTRALIA Grange-BlueScope benchmark

agree

107%

rise

on

pellet

Australian’s Grange Resources has agreed to sell iron ore pellet to off-taker Bluescope Steel at $150 per tonne starting from this month.

Japan’s Steel Mills Study Ore Swaps After Mitsui Deal, Credit Suisse Says .............................................................................. 3 Nippon Steel: Vietnam plant to tap Asian projects ..................... 3 Japan, S.Korea join hunt for global resources .............................. 3 Korea retains No1 shipbuilder status, but China close ................. 4 Posco Invests in Australian Iron Ore Mine, Seeks Stake in Brazilian Mill ...................................................................................... 4 Masteel sees more Govt jobs under 10MP .................................... 5 Lion Industries in tripartite venture for RM30mil slag processing plant ....................................................................... 5 Malaysian mini-blast furnace projects make progress ................. 5 Malaysian rebar mills cut production .............................................. 6 Malaysian ex-works rebar prices up $9 ........................................ 6

The price is more than double the annual benchmark price for pellet, Grange said in a statement. The two side are still negotiating the details of a system to fix prices for 800,000 tpy of blast furnace pellets to be supplied by Grange until June 30, 2012. “In addition to agreeing an interim price, we are also discussing a new pricing mechanism with BlueScope that would operate for the remaining two years of our current contract,” said Grange ceo Russell Clark. “The agreement on an interim price guarantees enhanced revenue whilst we finalise the new pricing mechanism going forward,” Clark added.

Government decides to delay removal of 7% tariff on imported steel .................................................................................................. 6 Manila approves removal of coil import tariffs ............................... 7 Steel prices seen going down by 5% ............................................ 7 Taiwan carbon, stainless flats to China to get tax breaks ........... 7 Thai HRC market weighed down by weak demand .................... 8

Pellets will be delivered from the company’s Port Latta facility for the quarter starting from July 1. No particular index has been chosen as the basis for fixing prices between the two companies, a Grange spokesman told MB, who was unable to provide further details.

Decision soon on labels for stainless-steel products ................. 8 Domestic steelmakers feel pressure from falling price ................. 8 Steel strategy aims to upgrade technology, not defend obsolete mills .................................................................................... 9 Brazil imported 1.8 million tonnes of flat steel in H1 .................... 10 Russian AD duty will displace Asia-origin exports to other markets ........................................................................................... 10 Russia sees Ukraine as gateway to markets ........................... 10 Anti-Posco activists hold massive rally, vow not to allow the Korean company ............................................................................ 11 Impose 20% export tax on iron ore .............................................. 11

The increased pricing arrangement with BlueScope is in line with the rise in spot iron ore prices since March this year, Clark said. Grange produces around 2.3 million tpy of iron ore pellets and is expected to increase output to 6.8 million tpy from 2012 when it starts producing from its Southdown pellet project with 30% stakeholder Sojitz Corp. Around 300,000 tonnes of material will made available to the spot market this year. Metal Bulletin, July 12, 2010

SteelHome Analysis on Export Rebates Removal’s Impact on Steel Industry .................................................................................. 11 China’s steel output in 2010 may hit new high: Minister ............. 12 China’s tax may hit profits of Asian steel majors ......................... 12 Small steel mills may be closed ..................................................... 13 Imported iron ore drops to below US$130 per ton ...................... 13 Global Steel in Recovery; Challenges Remain ............................. 13 Steel capacity issue still pressuring prices down ..................... 14 SE Asian billet importers bid below higher-priced offers ............ 14 Brief on ASEAN Steel Industry Performance in 2009 .................. 15 Call for papers for 2010 SEAISI Environmental & Safety Seminar .......................................................................................... 16

INDONESIA Krakatau, Posco to sign mill jv agreement next week Indonesia’s PT Krakatau Steel and Posco will next week sign their joint venture agreement in Jakarta for an integrated blast furnace flat steel complex. The date of the ceremony will be either 21 or 22 July and will be decided according to the schedules of the several Indonesian ministers nominated to attend, Jakartabased government sources tell Steel Business Briefing. According to State-Owned Enterprises Minister Mustafa Abubakar, Krakatau would take a 45% share in the proposed 6m tonnes/year integrated steelworks at Cilegon-Banten, west Java. The Korean company had Thursday, 15 Jul 10 proposed 6m tonnes/year integrated steelworks at Cilegon-Banten, west

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SEAISI Newsletter, July 2010

Java. The Korean company had been targeting a 70% share in the jv. The mill will have an installed 3m t/y capacity in the first stage and produce slab and mostly plate. A new company will be established for the joint venture. “Commercial production is expected by either end- 2013 or early 2014,” the official tells SBB, adding that “construction will be begin as soon as possible.” The two companies entered into a memorandum of agreement for the joint-venture in December last year. Discussions have been on-going over issues such as the share split of the joint venture and product output mix. These have delayed finalisation of the joint venture agreement by two months. Steel Business Briefing, July 15, 2010

JAPAN Japan’s Steel Mills Study Ore Swaps After Mitsui Deal, Credit Suisse Says Japanese steelmakers, the world’s second-biggest producers of the alloy, and consumers such as automakers may follow Mitsui & Co. in entering the growing iron ore swaps market, according to Credit Suisse Group AG. “We’ve been actively engaged with more than a dozen clients in Japan who are at various stages of assessing the opportunity and Mitsui was the first one to trade,” Alex Toone, head of commodities for Asia Pacific at Credit Suisse, said today by telephone from Singapore. Credit Suisse was a party in Japan’s first iron ore swap trade, completed by Mitsui on June 25, he said, declining to give more details. Deutsche Bank AG started offering iron ore swaps with Credit Suisse in 2008 at the instigation of BHP Billiton Ltd., the world’s biggest mining company, which was dissatisfied with the way ore in the estimated $200 billion-a-year market was priced. Vale SA, Rio Tinto Group and BHP, the three biggest suppliers, this year scrapped a 40-year tradition of setting prices annually in favor of quarterly contracts. “Things have moved amazingly quickly this year, much faster than perhaps even we would have expected,” Toone said. “There are people who are proactively looking at it in China, people in Korea, people in Japan. There are more participants in this market every single day.” Trading in the swaps allows users to fix prices in advance for single cargoes. The market may grow 10-fold to 360 million metric tons annually over the next two years, Credit Suisse estimated in February. Interest in the swaps has increased following the shift to quarterly prices, Toone said. ThyssenKrupp AG, Germany’s largest steelmaker, said in April it’s considering whether to use the derivatives after annual pricing was dismantled by iron ore producers. “What we’ve seen over the past several years is that the iron ore markets are naturally evolving to shorter periods of pricing,” Tom Albanese, Rio’s chief executive officer, said in an interview at the Fortune Global Forum in Cape Town June 27. “We are

SEAISI Newsletter, July 2010

going to continue to see an evolution of that market as we move forward.” Bloomberg, June 29, 2010

Nippon Steel: Vietnam plant to tap Asian projects Nippon Steel Corp, the world’s second-biggest steelmaker, said it would start producing steel pipe and steel sheet piles in Vietnam to tap burgeoning infrastructure projects in Asia and Oceania countries. Vietnam plans a large number of infrastructure projects such as railways, roads, ports and power generation, while demand for construction steel has halved in Japan in the past two decades due to the maturing economy and public spending cuts. The Vietnamese plant, near Ho Chi-Minh city, will be Nippon Steel’s first overseas production base for construction steel and will start operating in May 2011 with a capacity of 5,000 tonnes a month. “We expect Vietnam’s demand for construction steel to surge as lighter-weight steel will soon start replacing cement in infrastructure projects,” Eiji Hashimoto, a director at Nippon Steel, told a news conference. Vietnam’s demand for cement, at 50 million tonnes a year, has already topped that of Japan. Hashimoto said he expects the new plant to operate at full capacity in three to five months after initial shipment because of large demand and a lack of rival firms. The new plant will be owned 51 percent by Nippon Steel and 10 percent by government-owned Vietnam Steel Corp. Five Japanese trading houses will hold the remaining 39 percent stake. Vietnam’s state oil and gas group was seeking investments by Japanese firms in 28 projects in downstream oil, power plants and other businesses, a Japan External Trade Organization official said this month. Nippon Steel has recently been stepping up exports of construction steel as prolonged doldrums in Japan’s construction sector have weighed on its earnings. Last year the company supplied 16,000 tonnes of its 38 metre (125 ft) steel sheet piles for use in South Korea’s Inchon Bridge, connecting Inchon International Airport and the city. Reuters, July 5, 2010

Japan, S.Korea join hunt for global resources Japan and South Korea are under intense pressure to secure raw materials for their economies as neighbouring China strikes one resource-procurement deal after another. China in June signed more than $8.8 billion of commercial and mining deals with Australia. Japanese and South Korean firms, backed up their governments, are stepping up efforts to secure resource deals overseas. 3

Here are some recent deals they have pursued. SOUTH KOREA: * A South Korean consortium led by Korea Electric Power Corp acquired five Australian coal fields worth a total of A$580 million ($488 million) from London-listed Anglo American Plc earlier this month. * Korea National Oil Corp is talking over a cash offer for Britain’s Dana Petroleum, as it looks to use a $6.5 billion war chest to help double the country’s oil reserves. * POSCO, the world’s No.4 steelmaker, is looking at A$6.6 billion worth of investments in Australian Premium Iron Ore, a joint venture project in the Pilbara region of Western Australia. * KORES and South Korea’s small steelmaker Dongbu Steel in May agreed with South Africa’s Kermas to develop iron ore and titanium there. JAPAN:

(CGT) and 157 vessels, meaning the country has maintained its title of ‘world’s largest shipbuilding nation’ for six consecutive months. Total new orders globally were 8.82m CGT during the first five months of this year, with the volume destined for Korean yards accounting for 39.5% of this amount, according to Clarkson Research Service. In April, Korean shipbuilders, including Daewoo Shipbuilding & Marine Engineering, secured 1.06m CGT and 45 vessels, the highest level so far this year. “In line with an upturn in sentiment in the global economy in the first half of this year, new orders from foreign clients were active compared with last year,” a spokesman for Korea Shipbuilders’ Association (Koshipa) tells Steel Business Briefing. But China is not far behind Korea with 3.42m CGT in total for the first five months of 2010. With massive government support for the shipbuilding industry over recent years, the gap in new orders between the two countries may narrow further soon, industry sources note.

* Vietnam’s state oil and gas group Petrovietnam signed a memorandum of understanding on June 22 with the Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance and Sumitomo Mitsui Banking Corp for cooperation in areas such as long-term finance arrangements.

As at early June, Chinese yards have an order backlog volume of 53.17m CGT with 3,150 vessels, while Korea has a slightly smaller backlog of 49.50m CGT with 1,758 vessels.

* State-backed Japan Oil, Gas and Metals National Corp signed a deal with American Lithium Minerals Inc on June 11 to jointly explore a lithium mine in Nevada in the United States.

Posco Invests in Australian Iron Ore Mine, Seeks Stake in Brazilian Mill

* JOGMEC on June 24 selected Japan’s second-largest copper smelter Sumitomo Metal Mining Co Ltd to transfer its exploration rights for copper, gold and metal molybdenum in Brazil’s Carajas region. * JOGMEC in May decided to offer equity capital finance to a unit of JX Holdings Inc for an oil and gas exploration project in Vietnam. * JBIC signed a loan agreement in late May totaling $160 million with Similco Finance Ltd, a Canadian firm in which third-largest copper smelter Mitsubishi Materials Corp has an equity stake, to finance the restart of the Similco copper mine. * JOGMEC took an equity stake in Sumitomo Metal Mining Co’s nickel mining development project in the Solomon Islands in March. * Mitsubishi Corp, JX Holdings unit JX Nippon Mining & Metals Corp and Mitsubishi Materials in April teamed up to raise their combined ownership stake in Chile’s Escondida copper mine.

Steel Business Briefing, July 2, 2010

Posco, the world’s third-biggest steelmaker, will invest in an iron ore project in Western Australia and seek a stake in a Brazilian mill to expand markets and raw material supplies outside of South Korea. Posco will spend 194.7 billion ($162 million) to buy a 24.5 percent stake in the Australian Premium Iron project, the Pohang, South Korea-based company said today in a statement. It wants to buy about 20 percent of a steel venture planned by Vale SA and Dongkuk Steel Mill Co., it also said. Chief Executive Officer Chung Joon Yang is building plants and investing in mines in countries including Indonesia, setting aside a record $8.7 billion for capital spending this year. Posco, which gets 70 percent of sales from the domestic market, will gain a foothold in the South American nation and be able to supply the U.S. from the Brazilian venture, it said. “The iron ore mine investment is very positive,” Um Jin Seok, an analyst with Kyobo Securities Co., said in Seoul. “The Brazil venture is not a bad deal because Brazil is a fastgrowing market. It’d be better to join an existing project instead of starting from the beginning.”

Reuters, July 9, 2010

KOREA Korea retains No1 shipbuilder status, but China close Total new orders received by Korean shipbuilders between January and May reached 3.49m compensated gross tonnage

4

Posco shares rose 0.9 percent to close at 491,500 won in Seoul trading today, outperforming a 0.7 percent loss in the local benchmark Kospi index. The investment in the Australian project, being developed by American Metals and Coal International Inc. and Aquila Resources Ltd., will boost Posco’s self-sufficiency ratio of the material to 34 percent from 18 percent, the company said. Posco will receive 9.8 million metric tons of iron ore a year from the mine, about a fifth of its annual needs, it said. SEAISI Newsletter, July 2010

Iron Ore Posco will buy its stake from American Metals and Coal, whose holding will drop to 25.5 percent. Aquila Resources will retain its 50 percent stake. The Korean steelmaker will discuss investment terms in the proposed Brazilian mill with Vale, the world’s biggest iron-ore producer, and rival Dongkuk before making a final decision, the company said. “Since we hope Posco will join the project, we think it’s positive,” Kim Sun Hong, a spokesman for Seoul-based Dongkuk, said by phone today. “We expect some synergy in that Posco has the world’s best expertise in terms of furnace construction and operations and we can also diversify investment funding for the project.” The mill in Ceara is expected to produce 3 million tons of slabs a year after completion by 2014, Posco said. Posco earlier this year agreed to buy as much as 15 percent of the Roy Hill iron ore project in Australia and a 7.8 percent stake in a coal mine in Mozambique. Posco’s Australian unit today increased its shareholding in Murchison Metals Ltd. to 13.91 percent, making it the iron ore miner’s largest shareholder. Separately, Posco said today in a regulatory filing it will pay a mid-year dividend of 2,500 won. Posco is ranked as the world’s third-biggest steelmaker by the World Steel Association, with ArcelorMittal and Baosteel Group Corp. rated above it. According to the American Institute for International Steel, the South Korean mill comes fourth, after ArcelorMittal, Hebei Iron & Steel Group and Baosteel.

“We are a supplier to the region. Last year, there has been an uptake in demand (for steel),” he said. Tai said the projected 5% growth in domestic steel demand at the Malaysian Iron and Steel Industry Federation conference recently would augur well for steel companies. “With Masteel’s increase in production capacity for 2010 to 500,000 tonnes from 450,000 tonnes, we expect a 10% export growth this year.” According to Tai, Masteel exports its finished products to Australia and New Zealand while its semi-finished products were sold to countries such as Vietnam, Indonesia and Thailand. He said there was a misconception that the higher iron ore prices currently would squeeze Masteel’s margins. “The rise in iron ore and coking prices have no impact on Masteel’s production costs because the company uses prime steel scraps as its main raw material. “The strengthening of the ringgit will also help in reducing the cost of importing steel scraps from overseas,” he said. The Star, June 29, 2010

Lion Industries in tripartite venture for RM30mil slag processing plant

Lion Industries Corp Bhd has proposed to partner two foreign steel firms to set up a RM30mil slag processing and metal extraction plant at its existing facility in Banting, Selangor.

Bloomberg, July 16, 2010

MALAYSIA Masteel sees more Govt jobs under 10MP Malaysia Steel Works (KL) Bhd (Masteel) expects the bigger project value under the 10th Malaysia Plan (10MP) to boost its business from the Government sector to 25% within the next five years from 15% currently. Managing director and chief executive officer Datuk Seri Tai Hean Leng said the 52 high-impact projects worth RM63bil earmarked for 10MP was substantially higher compared with the RM33.1bil allocated under 9MP. “Steel consumption is expected to grow steadily over the next five years. If 10MP can materialise, (contribution from) the public sector could increase to 20% to 25%,” he said at a briefing yesterday. Tai said jobs from the private sector currently contributed about 85% of Masteel’s business. “These jobs comprise commercial and housing projects,” he said. Tai said Masteel was involved in projects within the Iskandar Region but declined to elaborate. SEAISI Newsletter, July 2010

“Under the proposed joint venture, Lion Industries will be able to benefit both as a shareholder and from having its steel mills recover iron metal from its slag at lower than market price,” it told Bursa Malaysia yesterday. The joint venture with US-based Tuner Industry & Trade Corp and Bichain Trading Co Ltd of Taiwan would start in the second half of this year. Slag is a by-product generated in the process of manufacturing steel via certain methods. Lion Industries said there was currently no other use for slag except as landfill. The Star, July 7, 2010

Malaysian mini-blast furnace projects make progress Malaysia’s Eastern Steel is negotiating with Chinese equipment suppliers for its proposed 700,000 tonnes/year miniblast furnace project in Teluk Kalung, Kemaman, in Terengganu state on the eastern coast of peninsular Malaysia. Project construction will commence after the supplier is selected, likely to be either at the end of this year or early 2011. “All the necessary approvals (including that from the Department of Environment) have been obtained for the project,” an official of Hiap Teck Venture – a 55% Eastern Steel shareholder tells. 5

In the first phase, a mini-blast furnace of 530 cu m inner volume and a slab caster of 700,000 tonnes/year capacity will be installed and operating by 2012-13. The company aims to produce slabs for supply to rerollers in Malaysia and across the region including those in Thailand, Indonesia and the Philippines that currently roll imported slab. Meanwhile, another Malaysian mini blast furnace project is aiming for commissioning by end of Q3 or early Q4 of this year. Ann Joo Resources will commission its 450 cu m blast furnace to produce 500,000 t/y of hot metal. Of this, 400,000 t will be fed to Ann Joo’s electric arc furnace at Prai, Penang. The excess will be sold as pig iron to domestic mills, as SBB reported. Steel Business Briefing, July 9, 2010

Malaysian rebar mills cut production Malaysia’s largest rebar mills have cut production to 50% of capacity while other smaller mills plan to reduce output by next month when Ramadan begins. Two of Malaysia’s four main rebar mills have cut their production to 50% of capacity, due to persistently slow demand and low domestic prices, according to mill officials.

Malaysian ex-works rebar prices up $9 Malaysian mills have raised rebar prices by 30 ringgit ($9) per tonne in the past week in response to higher scrap costs, despite weak demand. Rebar is listed at 2,050 ringgit per tonne ex-works this week, recovering from last week’s 2,020-2,050 ringgit, according to mills. Market prices have narrowed to 2,000-2,050 ringgit per tonne, from 1,950-2,050 ringgit last week. “Scrap prices have started rising again, so rebar prices rebounded too,” said a mill official. Prices of HMS 1&2 (80:20 mix) in containers from Europe, US, Middle East and Africa bottomed out and settled at $345360 per tonne cfr Malaysia end of last week, up from its $340360 cfr two weeks ago. “We can’t afford to lower prices again. In fact, our current rebar production uses scrap materials from two months ago when scrap was so expensive at $400-420 per tonne,” said another mill official. Demand however is still weak.

The mills were previously operating at 70-80% of capacity, the sources said. The four main rebar mills are Amsteel, Southern Steel, Ann Joo Steel and Perwaja. “The market is really bad. Goods are not moving. There is no use producing so much when we can’t sell them out,” one mill official told MB. “It’s not a matter of prices; demand is just not there and people are not buying,” he said. The other mills, including several smaller ones, are maintaining production at around 70% of capacity, but they are also preparing to cut output by next month when the Muslim fasting month starts on August 11. “We are still operating at full capacity at our two rolling mills, as we’re trying to build up stocks and we have some orders from Vietnam,” said another mill official. “But we can’t tell how long we will continue at this rate. During the fasting season, demand will be slow and all mills will have to [scale down] production,” he said. Domestic rebar prices have dropped another 50-80 ringgit ($1625) per tonne in the past two weeks due to sluggish demand. Malaysian mills and traders are listing their rebar prices at 2,020-2,050 ringgit per tonne this week, down from 2,100 ringgit per tonne two weeks ago. “Some mills may even offer below 2,000 ringgit per tonne, or at 1,950 ringgit per tonne, to some customers to push sales,” said a Singapore-based trader with operations in Malaysia. Metal Bulletin, July 12, 2010

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“Market is still very reluctant to buy, especially with the upcoming Ramadan season,” said the second mill official. Ramadan is the Muslim fasting month starting August 11. “Demand is not great at all. It has been bad since the beginning of the year, and will be so till the end of the year, as there is no new major project in the country,” said Ng Sem Guan, a steel analyst at OSK Research in Kuala Lumpur. Two of Malaysia’s four main rebar mills have cut their production to 50% of capacity, due to persistently slow demand and low domestic prices (MB Jul 12). Other mills, including several smaller ones, are maintaining production at around 70% of capacity, but they are also preparing to cut output by Ramadan. Metal Bulletin, July 19, 2010

PHILIPPINES Government decides to delay removal of 7% tariff on imported steel At the behest of Indian firm Global Steel Philippines Inc (GSPI), the government has decided to delay the removal of the seven percent tariff on imported steel. In an interview, Trade Undersecretary Zenaida C. Maglaya said that the decision to not sign the Executive Order was the result of the lowering of steel prices in the world market. “The EO was supposed to be signed together with the EO relaxing the tariff on petroleum, crude oil and asphalt,” Maglaya said.

SEAISI Newsletter, July 2010

The EO for the removal of steel tariff was sent back to the National Economic Development Authority (NEDA) board for further study. Maglaya said the decision to remove the tariff on imported steel will now be up to the new administration. In spite of this, Maglaya said they are not worried that the safeguard will result in the tightening of supply of steel products. “We are not worried because the industry is not complaining. Maybe they do not need it,” Maglaya explained. “The government is reviewing this again but the new administration will review it,” she said. Global Steel managing director Lalit K. Sehgal said the planned tariff removal has placed their operations in danger. However, he stressed they have not recommended the closing of the Philippine operations to the head office. Sehgal said they have power availability problems after failing to pay their electricity bills some years back. He said their debt is now being restructured because they are questioning the interest rates that were imposed on them. PhilStar, June 25, 2010

Manila approves removal of coil import tariffs The Philippines government has approved the removal of its 7% import duty on hot rolled and cold rolled coils. An executive order (EO) to that effect was signed by president Gloria Arroyo before her term of office ended on 30 June, local sources confirm to Steel Business Briefing. A Department of Trade & Industry official said his department was yet to receive a copy of the signed EO from the president’s office but confirms that the order has been signed. The EO will now be published in local newspapers and come into effect within 15 or 30 days from the date of publication. Manila’s decision to allow duty-free imports of coils follows a petition filed by the Filipino Galvanizers’ Institute, which claimed that Global Steel Philippines Inc (GSPI), which is the sole local producer of coils, was unable to sustain production and fulfil local demand. In late April, the Committee on Tariff & Related Matters (CTRM) advocated removal of the tariffs with a proviso that the duties be reinstated once GSPI is commercially operating. In May, the Philippines government asked galvanized sheet producers to temporarily suspend their price increase plans to give it more time to study their demand. The CTRM’s recommendation was upheld by the National Economic Development Authority and presented to Arroyo at a 25 May cabinet meeting. GSPI is yet to receive any official notification from the government on this matter, a senior company official tells SBB. Steel Business Briefing, July 2, 2010

Steel prices seen going down by 5% Prices of steel products are expected to go down by as much as five percent once the Executive Order (EO) which removed the tariff on imported hot rolled coil (HRC) and cold rolled coil (HRC) is lifted, the government said. In an interview, Bureau of Trade Regulation and Consumer Protection (BTRCP) Executive Director Victorio Dimagiba said that EO 898 which was signed last June 22 will help reduce the price of steel products. However, the EO is under review by the Department of Finance (DOF) because it was classified as a midnight EO. “It may be revoked but we are hoping that it will not be withdrawn,” Dimagiba said. If ever the EO is revoked, Dimagiba said the price will not go up given the stable prices in the world market. The EO is expected to be effective by July 15. DTI is expected to come out with a new suggested retail price (SRP) for steel products after July 15. “The price must go down by three percent to five percent,” Dimagiba said. Earlier, Global Steel has admitted they have been having problems with their operations for years and the lifting of the seven percent tariff on steel has endangered their already precarious operations. “Our existence is in danger,” Global Steel managing director Lalit K. Sehgal said. However, he stressed they have not recommended the closing of the Philippine operations to the head office. Sehgal said they have power availability problems after failing to pay their electricity bills some years back. He said their debt is now being restructured because they are questioning the interest rates that were imposed to them. When asked how they are able to produce HRC and CRC given their power problems, Sehgal said they are not operating regularly. Sehgal said they are operating at a loss ever since the global financial crisis has reduced the demand for steel. He noted that the domestic demand is currently at 7,000 to 8,000 tons per month only. In order to break even or to not incur losses, Sehgal said they should sell 60,000 to 70,000 tons per month. Phil Star, July 15, 2010

TAIWAN Taiwan carbon, stainless flats to China to get tax breaks China-bound Taiwanese carbon and stainless products – mostly sheets and coils – are set to enjoy import tax breaks starting next year under the Economic Cooperation Framework Agreement (ECFA) signed by China and Taiwan on 29 June. An ‘early harvest list’ released by the Taiwanese government after the signing shows that products that will have their import tax reduced or cut include ten carbon steel products including

SEAISI Newsletter, July 2010

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hot rolled coils, cold rolled coils, electro-galvanised sheets, non-alloy wire and silicon electrical steel. These products currently attract import tax rates of 3-8% in China. The list also cites twelve stainless steel items including hot rolled and cold rolled sheets and coils and strips. Stainless HRC imports are currently taxed at 4%, and CRC and strips at 10%. The import tax rate of products currently taxed at 5% or less will be cancelled starting 1 January 2011, while those currently taxed at 6-15% will enjoy a lower rate of 5% next year, and then abolished in the following year. There are no tax breaks for exports of Chinese steel or related products to Taiwan. Taiwan’s largest carbon steel producer, China Steel Corp, says it expects to reap gains from ECFA in the next one to two years when its melting and cold rolling capacities start expanding. Steel Business Briefing, July 1, 2010

Decision soon on labels for stainless-steel products The Committee on Label Control for Stainless Steel Products will soon make a final decision on implementing a regulation. The decision is expected to be released within the next couple of months. The committee will hear comments from concerned agencies, including the Thai Stainless Steel Development Association and the Office of the Consumer Protection Board, which recently held a brainstorming session to collect opinions from manufacturers, consumers and academics. Assoc Prof Dr Chatchai Somsiri, TSSDA’s technical board director, said those concerned parties agreed with the enforcement of label control regulation on stainless-steel products. The regulation aims to solve the problem of substandard products and false claims on labels. The Nation, July 13, 2010

THAILAND Thai HRC market weighed down by weak demand

VIETNAM Weak demand continues to depress commercial hot rolled coil prices in Thailand’s domestic market. Thai stockists are offering HRC at around THB 21,000-21,500/tonne ($647-662/ t) delivered whereas the domestic mills are aiming to sell their HRC at THB 23,000-23,500/t ex-mill. Prices exclude the 7% VAT. Some of the former includes overhang stock. But trading sources tell Steel Business Briefing that Thai buyers are aiming to book only at THB 20,500- 20,800/t. “The stockists have a lot of material in hand, so the producers cannot sell at high prices,” a local trader says. “The market sentiment is negative. People just want to wait-and-see,” another tells SBB.

Domestic steelmakers feel pressure from falling price Steel retailers are suffering significant losses due to overstock and price cuts during the construction season. Since the beginning of this month, the Viet Nam Steel Association (VSA) has received two notices of steel price reductions from its member companies. The steel mills have cut prices by VND300,000-600,000 per tonne in an attempt to clear their stockpiles. With June’s cuts, the steel price is roughly VND3 million per tonne less than its zenith in April.

Describing the market as “terrible”, a trader in Bangkok says the weakness for HRC used for commercial purposes is in line with sluggish construction activity and is the result of the country’s ongoing political turmoil.

In March, there was news that as the iron ore price increased by 40 per cent compared to the same period of last year, steel prices would also increase, leading the steel price to rise to US$630 per tonne.

“It will take another quarter for the government to resume construction projects,” he adds. There is strong demand for high-grade HRC for automotive applications but this is mostly imported, he adds.

There was also news that the Government would restrain the import of some goods, including construction steel, to curb the trade deficit. Big retailers used this information to forecast a sharp increase in the price of steel, so they scrambled to stock up large quantities. The result was a shortage in supply and an accompanying price rise.

The domestic HRC producers raised their prices by THB 1,0002,000/t in end-June. This came soon after the Thai government commenced an anti-dumping investigation against HRC imports from China and Malaysia and the announcement that the Chinese export rebate for HRC will be removed effective 15 July. The Thai government on 6 July extended for three months a state of emergency in Bangkok and 18 provinces. Sporadic violence has continued in the country after a military crackdown ended antigovernment rallies in central Bangkok on 19 May. Steel Business Briefing, July 8, 2010

8

However, as the steel price rose sharply in a very short time, the market reacted contrary to expectations. The potential buyers delayed their construction plans because they were unsure how high the price would eventually go. Currently, the factory steel prices range from VND11.7 million to 12.3 million per tonne for scrolled steel and VND12.1 to 13.1 million per tonne for steel bars. Despite the price cut, surveys from building material stores show that buyers are sparse. The retail price recently dropped sharply but only a few buyers came forward as most consumers want to wait for further price cuts.

SEAISI Newsletter, July 2010

VSA said that steel producers had to cut the price due to low demand. Currently, steel products are selling slowly, steel mills are running at below capacity and the supply is abundant. In March, VSA members reached a record sales volume of 568,000 tonnes, but by April, the sales volume had fallen to 299,000 tonnes, and continued to reduce to 283,000 tonnes in May. Consumption in June is estimated to be even gloomier. Nguyen Tien Nghi, vice chairman of VSA, said there are currently 371,000 tonnes of finished products and 560,000 tonnes of steel billet in stock.

Bui Quang Chuyen: There are only two such cases. The first is the Shengli steel mill in Thai Binh province. In the first phase of the project, the investor built a mill to make 600,000 ton of steel ingots annually. All along, it was understood that the feasibility of the investment depended on completion of a second phase, in which the investor would convert ingots into structural steel, up to 200,000 tonnes per annum. When Shengli began implementing Phase II in late 2009, some argued that it was defying the Government’s order to refuse any further structural steel projects. However, the second phase had already been foreseen in the original investment license.

According to experts, the excessive stock piles of steel products going into the rainy season (low season for construction) has led to reduced purchasing power in southern provinces.

The second case involves a mill built by Viet Duc Steel Company in VInh Phuc Province which went into operation in April. We are looking into this case.

The declining trend in the steel billet price on the world market indicated that the steel price could continue to fall.

VietNamNet: What’s the situation with respect to revoking licenses of moribund projects?

Domestic steel producers also have to compete against cheaper imports, which priced roughly VND100,000 - 150,000 cheaper than domestic steel.

Chuyen: Local authorities have been checking the status of approved projects. Recently, the Ba Ria –Vung Tau Industrial Zone Management Board transferred the investment certificate of the Essar hot rolled coil steel (HRC) project to the Vietnam Steel Corporation (VSC).

Big retailers with large stockpiles are suffering significant losses as a result of the price cuts. Some steel makers have said they are losing more than VND1 million per tonne at the current price level. Nguyen Vinh, director of a steel firm in Cau Giay District, said that the fluctuation of steel prices has caused some big retailers to incur billions of dong in losses, while smaller stores are suffering from losses in the hundreds of millions of dong range. Vietnam News, June 30, 2010

Steel strategy aims to upgrade technology, not defend obsolete mills The steel industry association has been warning that the nation already has too many steel mills, and the Government has put the brakes on some new mills. However, even though investors have been slow to implement approved projects, no licenses have yet been yanked. VietNamNet interviewed a high Industry & Trade Ministry official to find out why. Sixteen months ago, Deputy Prime Minister Hoang Trung Hai instructed cities and provinces and the Ministry of Planning and Investment to stop granting licenses to projects for manufacture of ordinary structural steel. Hai also told local authorities to check licensed projects and revoke investment licenses from the projects which have been slow in implementation. Though no license has yet been revoked, it now looks as though Ninh Thuan province will cancel the huge Ca Na project. “Granting and revoking licences is a prerogative of local jurisdictions,” explains Bui Quang Chuyen, Deputy Director of the Heavy Industry Department (MOIT). “We can only advise them.” VietNamNet: The Government told local authorities to stop granting license to the steel projects that make ordinary structural steel. Why have more steel projects still been licensed? SEAISI Newsletter, July 2010

Decisions are pending in other provinces where, mainly as a consequence of the global recession, investors have failed to implement projects. We’ve discovered that coordination between the ministry and local authorities has not been satisfactory. Provinces have been slow to report problems or have sent misleading reports. VietNamNet: In its latest update, your ministry mentioned three big projects that may not be implemented, including the Ca Na project and the projects under development by two Indian corporations, Tata and Essar. Can you tell us more? Chuyen: Ninh Thuan province has decided that the $9.8 billion Ca Na project will not be implemented. Its Malaysian promoters proved not to have the financial ability to carry out the work. As for Tata Group’s $5 billion steel mill project in Ha Tinh, we still support it. Tata is India’s largest corporation and one of the ten biggest steel makers in the world. They still wish to develop the project. The Prime Minister has tasked the Ha Tinh provincial authorities to work out a way to go forward with Tata and VSC, its partner in the joint venture. We also want the two million ton per annum HRC steel project in Ba Ria – Vung Tau to be implemented. Though Essar’s backed out, we support that project because Vietnam still must import HRC. Its implementation of the project depends on VSC’s arranging financing. VietNamNet: Why should we worry if there are many steel projects not listed in the steel industry development strategy? Chuyen: We want to avoid more projects using obsolete technology. Every new steel project increases demand for electricity, which is already in short supply. An ingot steel mill consumes 500 to 700 kWh to make one ton of ingot steel. Further, we already have plenty of mills that make structural steel. Besides, the existence of the steel mills 9

that make normal construction steel will cause overproduction and cause waste in investment. VietNamNet: It’s said that MOIT will propose that the Government add more steel projects into the steel industry development strategy. Will that lead local authorities to license more steel projects? Chuyen: The steel industry development strategy is openended and, in my view, already 90 percent successful. We are going to be putting more emphasis on assuring that developers have good financial strength and will get right to work. We need projects which use modern technologies and make products that Vietnam currently must import. We need to pay attention to project efficiency, not worry if there are too many steel projects or if current, obsolete facilities cannot compete. Vietnam Net, July 15, 2010

RUSSIA Russian AD duty will displace Asia-origin exports to other markets Asian stainless steel producers may become more aggressive sellers in other export markets if anti-dumping duties on Asian stainless steel are levied in Russia, market participants said. The Russian ministry of industry and trade proposed antidumping duties on imported austenitic stainless steel flat products from a number of countries, including producers in Asia. The ministry proposed the duties be imposed for five years on imports from China, Korea, Taiwan, South Africa and Brazil, following lengthy investigations. Imports from Shanxi Taigang would be subject to a 27.9% tax, while all other Chinese producers would be subject to a 39.1% tax, the ministry proposed.

BRAZIL Brazil imported 1.8 million tonnes of flat steel in H1

It also proposed a 4.8% duty on Posco and 62.8% on imports from other Korean producers, a 30.2% duty to Taiwanese steelmaker Yeun Chyang Industrial, a 21.1% duty on imports from Brazil and a 33.3% duty on material from South Africa.

Brazil imported roughly 1.8 million tonnes of flat steel products in the first half of the year, almost three times the 663,179 tonnes recorded in the corresponding period of 2009 and more than the whole volume of imports last year, at 1.37 million tonnes.

The measures are still to be agreed by the government, but it may be a matter of weeks or a few months before it passes, a market analyst said.

Low international prices, a favourable currency and high domestic prices by the local steelmakers have all been factors driving the rising imports, according to traders and distributors. Out of the 1.8 million tonnes, 466,594 tonnes came from China, according to figures from Brazil’s ministry of foreign trade.

As a result of this duty, the Chinese and Asian producers may become more aggressive in other markets such as in Europe, EU merchants warned. “The Chinese will lose an important export market so they will have to push more in other areas,” the analyst said. Metal Bulletin, July 5, 2010

Russia came next with 324,676 tonnes, followed by South Korea (194,700 tonnes), Japan (120,134 tonnes) and Mexico (114,933 tonnes).

Russia sees Ukraine as gateway to markets

In terms of products, 531,508 tonnes of the total were hot rolled coils, 506,642 tonnes were cold rolled coils, 329,502 tonnes were hot dipped galvanized coils, and 195,089 tonnes were heavy plates.

With rumours rife in Ukraine that Zaporizhstal’s majority stake had been acquired by Severstal’s owner Alexey Mordashov’s private company, it seems that expansion-driven, raw materials rich Russian producers see Ukraine as a gateway to the world steel market since the country’s recent accession to the World Trade Organisation(WTO).

Brazilian importers must pay a 12% import tax on most flat steel products, but even so deals continue to be done. “Most of the tonnage imported in the first half was actually purchased in deals at the end of last year, but deals continued to be done over the last few months and continue being done now, although at a slower pace,” one executive at a service centre in São Paulo state told MB. The threat of imports is one of the main factors behind a recent price increase step back by Brazilian steelmakers. The figures from the ministry show that 238,240 tonnes were imported in January, 226,860 tonnes in February, 406,189 tonnes in March, 338,503 tonnes in April, 296,200 tonnes in May, and 293,104 tonnes in June. Metal Bulletin, July 9, 2010

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Ukraine’s hitherto perceived overcapacity of crude steel – estimated at over 40m tonnes/year – appears to be turning into an advantage, as several leading steelmakers acquire its assets. Severstal already owns a longs producer Dneprometiz. Russia’s Evraz owns Dnepropetrovsk Iron & Steel Works, Sukhaya Balka iron ore mining and beneficiation plant, and coke producers Bagleykoks, Dneprkoks and Dneprodzerzhinsk Coke Chemical Plant. Also, 50% of Ukraine’s IUD corporation is owned by Russian investors. Russian producers certainly have the financial capacity to develop Ukraine’s natural resources, invest in obsolete steel plants, and supply raw materials to them. So while the country’s steel producing facilities need serious investment, given its rich metallurgical heritage, natural resources and SEAISI Newsletter, July 2010

direct access to maritime routes, Ukraine, an export-orientated steelmaking country, now looks to be one of the best places to produce low cost steel Steel Business Briefing hears from industry sources. According to the European Commission, apart from a licence and certificate of origin, Ukrainian steel requires no other condition to enter the EU. Globally, even with existing tariffs and other forms of protection, the WTO works to enhance fair competition, opening many opportunities for the exporter, a major trader tells SBB. Steel Business Briefing, July 19, 2010

INDIA Anti-Posco activists hold massive rally, vow not to allow the Korean company Barely three days after the new resettlement and rehabilitation package was announced for the people to be affected by Posco-India’s 12 million ton steel project, thousands of antiPosco activists on Sunday held a massive rally at Balidhipa near Paradip and vowed not to allow the South Korean steel major to enter the area. They also burnt down copies of the special compensation package for the project-affected people.

Impose 20% export tax on iron ore In order to discourage the export of iron ore, steel minister Virbhadra Singh demanded an imposition of export tax at the rate of 20% on the commodity, with immediate effect. As a long term policy, the minister went ahead seeking a ban on export of iron ore, stating that the raw material should be preserved for the use of the domestic industry. “As far as steel ministry is concerned, we favour placing a ban on export of iron ore,” Singh said. “We should conserve iron ore to meet the present and future requirements of the country rather than repenting later,” he added. Singh further said that as an immediate step towards restricting exports, a “flat 20% duty should be levied on iron ore consignments leaving the country. At present, export duty on iron ore fines is 5% while it is 15% on lumps. India produced about 230 million tonnes of iron ore in the last fiscal, of which around 106 million tonnes were exported, mainly to China. He said India should dispatch finished goods made of the ore. Steel secretary Atul Chaturvedi said his ministry would give its viewpoint on iron ore exports at an eGoM meet scheduled for July 22. The Economic Times, July 17, 2010

CHINA

The activists, who under the banner of Posco Pratirodh Sangram Samiti (PPSS), gathered at the meeting place, said the state government wanted to woo the local people by offering a fresh package that promises increased financial compensation for lands. “Package or no package, – people are not interested to part with their lands. Why the state government is so keen for Posco project that threatens to throw local people out of their traditional livelihoods? Why does it not encourage agriculture? Vegetable prices have gone up. Encourage the farmers to grow vegetables and cash crop and they can earn more what they will get from Posco,” the leaders, who addressed the gathering, observed.

SteelHome Analysis on Export Rebates Removal’s Impact on Steel Industry

Presided over by PPSS chief Abhaya Sahoo, the rally was addressed by former high court justice Choudhury P.K. Mishra, Lok Abhijan Orissa president Prafulla Samantara, Paschima Orissa Krushak Samanwaya Samiti leader Lingaraj Pradhan and veteran scribe Rabi Das.

China announced to revoke export rebates on some steel products with the purpose of curbing exports of high energy consumption products and accelerating backwards elimination to relieve the country’s pressure of energy saving and emission reduction. However, the removal of export rebates will weigh on fragile domestic steel market to some extent.

Dhinkia sarapanch Sisir Mohapatra, samiti member Prakash Jena and Nuagaon gram panchyat samiti member Basudev Behera were among several people’s representatives who attended the meeting. The Sunday’s meeting has come as a major setback to the state government’s effort to win the hearts of local people in favour of the support. The government had offered Rs 17 lakh per acre of private land, besides promising hefty compensation for agricultural land, prawn farms and betel vines. Posco had signed memorandum of understanding on June 22, 2005 to set up its integrated project at an estimated cost of Rs 52,000-crore. However, the project has failed to take off because of the resistance by the local inhabitants.

China on Tuesday announced to revoke export rebates on 406 items as of July 15, 2010. Large sections (including H beam), HR siliconmanganese alloy steel bar, plain medium plate, plain HR band, plain HR/CR narrow strip, W£¼ 600mm electro-galvanized narrow strip, W£¼ 600mm hot galvanized narrow strip, W£¼ 600mm tinplate, W£¼ 600mm other plated sheet and some common cold-formed profiles are all involved. Export rebates on Te” 3mm high strength plain CR plate was 13 percent and that on other steel products was 9 percent before the cancellation.

1 The removal of export rebates will mount up oversupply pressure of some steel products The removal of export rebates is bound to impact on steel export and hence mounts up oversupply pressure at domestic market. According to statistics from Customs , China exported 5.15 million tonnes of steel products involved in the export rebates removal, accounting for 39.6 percent of the total. Large sections, HR band and medium plate exports achieved 700,000 tonnes, 2.883 million tonnes and 1.102 million tonnes in the first four months of 2010, taking up a large portion of 20.7 percent, 6.1 percent and 5 percent of the total.

The Economic Times, July 11, 2010 SEAISI Newsletter, July 2010

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Export in Jan.-Apr. 2010 Output in Jan.-Apr. Exports/output Large sections

70

337.8

20.70%

HR coil

288.3

4742.9

6.10%

Medium plate

110.2

2183

5.00%

CR narrow strip

7.5

248.9

3.00%

Galvanized plate

9.4

899.9

1.00%

HR narrow strip

14.2

1729

0.80%

Prepainted sheet

0.9

151.8

0.60%

HR siliconmanganese alloy steel bar 1.5 Cold-formed profiles

3.5

Siliconmanganese alloy steel wire

9.2

Total

515

Steel products

1298.6

The proportion in total exports

39.60%

25442.6

5.10%

2 Rebate cut will pare competitiveness of Chinese products at world export market The rebate cut will increase export cost of Chinese products and hence pares its price competitiveness. Take Shanghai for instance. Market price in Shanghai Product

Spec

Medium plate

USD per tonne

Price with export rebates

Price after the removal of rebates

20mm

4200

618

570

618

HR band

5.75mm

4160

612

565

612

Channel

8#

4120

606

559

606

S Korea, Southeast Asia and India are China ’s major export destinations. China ’s major steel products export by country in Jan.-Apr. 2010 (Quantity in 10000 tonnes) Proportion in the total %

Vietnam

Proportio n in the total %

9.5

6.9

6.4

3.9

India

Proportion in the total

Medium plate

S Korea

4 months exports

68.6

49.9

HR coil

S Korea

Proportion in the total

4 months exports

96.7

29.6

96.8

29.6

Large sections

S Korea

Proportion in the total

UAE

Proportion in the total

Singapore

Proportio n in the total

4 months exports

33.5

45.3

6.6

8.9

5.5

7.5

On balance, the removal of export rebates will take a toll on market sentiments and give rise to price fluctuation. China ’s steel export will face a much tougher environment in the short term as world economic recovery is fragile and global steel market is going downhill. Steelhome, June 2010

China’s steel output in 2010 may hit new high: Minister

China’s steel output reached 269 million tones in the first five months of this year, up by 23.8 percent year on year, Li said on Monday at the National Steel Industry Forum held in Dalian city of northeast China’s Liaoning Province. From January to May this year, China’s fixed asset investment in its steel industry grew by 13.8 percent year on year to stand at 135.6 billion yuan (20 billion U.S. dollars), Li said. Also, steel output is expected to be continually increased due to newly built steel projects, he said. China, however, will not approve any new steel construction before the end of 2011, as the growing steel production capacity makes it more difficult for the country to save energy and reduce emissions, Li added. People’s Daily, July 12, 2010

For instance, imported HR coil and medium plate price hit KRW790,000 (US$634 per tonne) in S Korea . Chinese HR coil and medium plate will lose price competitiveness if some taxes aren’t rebated. However, the removal of export rebates will only have an effect on steel market in the short term. China steel export is going downhill even if the government keeps export rebates

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It is learned that large and medium steel mills have shortened order backlogs and they are not yet sold-out for June delivery. Operating cost of domestic steelmakers will further increase in the third quarter as a result of rising iron ore price. Therefore, the removal of export rebates will not trigger a sharp drop at domestic market in view that steel mills by large have slender profit margin and some even run into losses at present.

China’s steel output in 2010 might hit a new high of 620 to 630 million tonnes, a 10 percent increase year on year, Minister of Industry and Information Technology Li Yizhong forecast at a forum Monday.

At present, CIS’s HR export quotation stands at US$580 per tonne ( Black Sea , FOB). However, Chinese steel mills are unlikely to further cut export quotation as they by large have slender profit margin and some even plunge into losses due to high raw material price. Therefore, the removal of export rebates will pare competitiveness of Chinese products at world export market.

Singapore

According to WSD’s June 14 report, HRB average price fell 4.5 percent compared with two weeks ago to US$625 per tonne (FOB) at world export market, a decrease for the third time. HRB spot ex-works price dropped by 4.2 percent compared with two weeks ago to US$728 per tonne in US, a decrease for the second time.

Export price（FOB）USD per tonne

CNY per tonne

Proportion in the total %

unchanged as demand weakens and steel price heads south at international market on precarious economic situation.

China’s tax may hit profits of Asian steel majors China’s tightening and a new pricing scheme for raw materials could hit Asian steel companies which are already reeling under pressure to recover from last year’s recessionary trends. Many Asian steel companies have already put in huge investments expanding their capacity in view of expected recovery in the region’s auto and consumer electronics markets. But a feeble property market in China since May this year has weighed heavily on the steel prices, igniting a sell-off in teh region’s steel stocks.

SEAISI Newsletter, July 2010

The decision to remove tax rebates in China on some steel exports from July 15 to minimize exports is expected to affect the country’s steel market along with the declining iron ore price.

Imported iron ore drops to below US$130 per ton With a drop in steel prices, prices of imported iron ore also plunged. Yesterday, the prices of 63.5 percent Indian fine ore fell below 130 U.S. dollars per ton for the first time this year.

The figures from China Iron and Steel Association show that China has produced 17.109 million tonnes of steel in the last 10 days of June, a decline of 3.2 percent over the preceding 10 days.

Compared to the peak in mid-April, when iron ore prices reached almost 200 U.S. dollars per ton, current iron ore prices have contracted around 30 percent.

The benchmark rebar contract for October delivery on the Shanghai Futures Exchange closed at 4,200 yuan per tonne on Thursday, down 1.66 percent from last week.

In addition, according to a report by the Beijing News, iron ore stocks in China’s 19 major ore importing ports totaled nearly 78 million tons, the highest in 2010.

According to China Securities Journal, 19 steel enterprises in northern China are already planning significant production cuts this month, and rolling mills in the region are now running at less than 50 percent of total capacity.

However, steel producers failed to gain from falling iron ore prices because prices of steel products drop faster than iron ore and large steel producers have to adhere to pricing agreements reached with iron ore suppliers, rather than head for the spot market.

The new tax change in China may also help steel mills outside China as the international steel prices may find support from a higher Chinese cost base. International Business Times, July 12, 2010

Small steel mills may be closed China’s Ministry of Industry and Information Technology (MIIT) yesterday released further regulations on steel producers’ energy consumption, production capacity and environmental protection after urging commercial banks to suspend issuing credit to steel mills that were blindly expanding. China plans to step up consolidation of its steel sector this year by closing small mills and improving production standards, the ministry said on July 12. The ministry requires that the steel mills’ waste water discharge should be no more than 2 cubic meters for every ton of steel produced, while dust and sulfur dioxide discharge should be within 1 kilograms per ton and 1.8 kilograms per ton, respectively. The regulation also pledged to eliminate mills that produced less than 1 million tons of crude steel last year. Zhou Xizeng, a steel industry analyst with the CITIC Securities, pointed out that most of China’s small and mediumsized steel producers are unable to meet the capacity requirement, while 70 larger steel mills contribute 80 percent of China’s steel production. “This indicates that lots of small steel mills will be shut down,” he said. Regulations on financing and land use will also be tweaked in order to encourage further consolidation in the sector, and mills will also be encouraged to travel wider in their search for takeover targets. The ministry said last month that China would put 60 percent of its total steel capacity in the hands of its 10 biggest steel producers by 2015. People’s Daily, July 13, 2010

SEAISI Newsletter, July 2010

Industrial insiders predicted that the steel industry will witness negative profits in the third quarter. Statistics from the Lange Steel Information Network showed that from mid-April to July, the average price of steel products dropped by around 15 percent. People’s Daily, July 13, 2010

WORLD Global Steel in Recovery; Challenges Remain Fitch Ratings expects to see demand for steel to continue on a slow and steady recovery pace over the next 12-18 months but not to reach peak levels for developed nations until 2012, according to its ‘Worldwide Steel Outlook’, issued today. Pricing should continue to be constrained by excess capacity and cost pass-through could be challenging in the second half of 2010. Excess or below-cost production should be limited. ‘With capacity utilization in most regions above 70%, steel producers are better able to manage profitable production and prudent investment,’ said Monica Bonar, Senior Director at Fitch. ‘Producers with raw materials integration should do relatively better given the rebound in raw materials prices. ‘ Fitch believes that producers with relatively high exposure to value-added steel products should benefit from premium pricing and those with substantial operating scale, which can afford the ability to temporarily curtail production during lulls to reduce costs while serving customer demand, should also show sustainable advantage. Producers with relatively high exposure to construction in some developed countries will be disadvantaged as a result of credit- or fiscal-induced austerity spending levels over the next 18-24 months. KEY Second Half 2010 THEMES/EVENTS: The possibility of fiscal austerity and its impact on the fledgling recovery in some developed nations is already disturbing capital flows and may result in slower growth. Most steel producers in Europe and North America have had a cautious approach to capacity restarts and should be able to manage profitably in a slow growth environment. Should a new crisis 13

develop, producers will need to rely on liquidity and the strength of their capital structures. China is dominant, accounting for 47% of global steel production and 48% of global steel consumption in 2009. While demand continues to grow, capacity increases have been outsized. This results in a substantial overhang to the domestic market and limits price appreciation. Excess production would pressure the recovery in Europe and North America or exports from Russia and Brazil. Recent monetary tightening and efforts to cool property speculation in China may result in slowing domestic demand and excess supply. Cancelation of the 9% value added tax rebate on some steel exports beginning July 15, 2010 and a willingness to let the renminbi appreciate could constrain China’s steel exports. Fitch expects results in the first half of 2010 for most steel producers to show the benefits of prices rising more than costs, improved capacity utilization, and improved demand for value-added steels. Results for the fourth quarter of 2010 should show seasonal weakness. Fitch expects reaction to a further demand slowdown to be swift and decisive. Reuters, June 28, 2010

Steel capacity issue still pressuring prices down Hot band steel prices remained under pressure worldwide in the past two weeks, falling as much as 5.7 percent, according to the latest SteelBenchmarker report. U.S. hot band tags are put at $674 per tonne ($611 per ton) f.o.b. mill by SteelBenchmarker, but an informal survey of steel buyers by AMM puts tags even lower at around $600 per ton ($30 per hundredweight), off about $20 per ton in the past two weeks and down $110 per ton from the $710 peak reached in early May. “I think the $30 number has been hit,” a Midwest service center source said Wednesday. “You’d have to have (a lot of) tons, but I think if you have them you might see numbers dip below that.” Whether current hot band prices represent the bottom of the market remains to be seen, but some see more room on the downside. Analyst Charles Bradford of Affiliated Research Group, New York, expressed concern in a recent research report that the decline in hot band prices could “speed up” if some mills don’t reduce output, “with $550 per net ton a possibility.” Steel buyers surveyed by AMM generally believe that mills brought too much capacity on line too quickly coming out of the recession, essentially creating an oversupply of steel that, combined with falling scrap prices, is pushing steel prices down. Bradford noted the recent start-up of U.S. Steel Corp.’s Lake Erie Works in Nanticoke, Ontario, and the pending availability of steel from ThyssenKrupp’s new mill in Calvert, Ala., which is scheduled to begin production in the next several weeks. “We further believe that too much capacity was restarted too soon earlier in the year as mills miscalculated the demand 14

recovery and some had operating difficulties,” Bradford said. “As these mills caught up with their orders, customer inventories increased. In addition, we understand that a large number of steel users are delaying their orders as they wait for the mills to reduce prices in accordance with their scrap surcharge programs.” SteelBenchmarker’s July 12 report, released Wednesday, said U.S. hot band fell for the fourth consecutive time to $674 per tonne ($611 per ton), down 4.8 percent from $708 per tonne ($642 per ton) in its report two weeks earlier. “I do think we’re at the bottom,” the Midwest service center source said. “We’ve had some internal discussions here where some of my colleagues think it might come down a little more, but what’s another $10 or $20? I am surprised that things came down as fast as they did. I think the mills were caught off guard and now their leadership has reached a point where they aren’t going to let it go down much more. I’d say the odds are better that it’s going to go up from here rather than further down.” Prices for other U.S. steel products also continued to slide, according to SteelBenchmarker. Cold-rolled coil was put at $786 per tonne ($713 per ton), down 4.7 percent from $825 per tonne ($748 per ton) two weeks ago, and standard plate skidded 3.2 percent to $868 per tonne ($787 per ton) from $897 per tonne ($814 per ton). The declines came amid falling scrap prices. SteelBenchmarker said shredded scrap is selling at $309 per tonne delivered, down 1 percent from $312 previously; No. 1 heavy melting scrap is $280 per tonne, down 3.8 percent from $291; and No. 1 busheling is down 4.9 percent to $389 per tonne from $409. Hot band prices elsewhere in the world tracked downward as well. The world export market held up better than other markets, with prices slipping just 1.5 percent to $584 per tonne f.o.b. port of export from $593 two weeks ago, the fifth consecutive decline, according to SteelBenchmarker. Western European hot band prices slid for the fourth consecutive time to $675 per tonne ex-works, down 3.2 percent from $697 previously, while hot band prices in China fell for the fifth time in a row to $482 per tonne ex-works, down 5.7 percent from $511. SteelBenchmarker (www.steelbenchmarker.com), launched by World Steel Dynamics Inc., Englewood Cliffs, N.J., and AMM/ Metal Bulletin in April 2006, reports prices twice each month for hot-rolled band and cold-rolled coil in four markets, as well as U.S. prices for rebar, standard plate and scrap. Metal Bulletin, July 19, 2010

SE Asian billet importers bid below higher-priced offers Buying interest for imported billet continues in Vietnam and Thailand but the price gap between importers and sellers is limiting deals from taking place, regional trading sources tell Steel Business Briefing. There is little change in transacted prices of $530-535/tonne cfr and importers are generally bidding at up to $530/t cfr. They are unwilling to pay more for billet because rebar prices are still sluggish in their domestic markets. SEAISI Newsletter, July 2010

•

In Vietnam, offer prices are prevailing at $540/t cfr for Korean billet and $540-545/t cfr for Russian material. “There is buying demand but customers do not want to pay,” a trader in Vietnam tells SBB. Importers want to book now because scrap prices are rising but they have to raise their prices in order to secure billet, he adds.

Indonesia and Malaysia’s steel consumption declined significantly by 16% and 20% to 7.4 million tonnes and 6.6 million tonnes, respectively. Singapore’s consumption of 2.8 million tonnes in 2009 was a significant decline by 23% y-o-y. Steel consumption in Philippines, on the other hand, was least affected by the global economic meltdown, with a marginal decline of 1.2% to 3.5 million tonnes.

• •

Offers from Thailand more than a week ago were at $565-570/ t cfr Vietnam, and Malaysian mills are indicating offers at around $565/t cfr. Asian-origin billet shipped to Vietnam enjoys a lower preferential import duty.

S hare of apparent steel consumption

Apparent Steel Consumptio n (1998 – 2009) (million tonnes)

In Thailand, Ukrainian Black Sea billet is generally offered at $530-540/t cfr while Russian billet is being offered at $530550/t cfr. Traders also report offers of Ukrainian Black Sea billet at $525/t cfr Thailand and at $530/t cfr Indonesia.

100%

Vietnam

12. 0 10. 0

18%

8. 0

25%

6. 0 4. 0 2. 0 1 998

Thailand

Black Sea billet is not popular because it takes longer for shipments to arrive. Offers in the Philippines are prevailing at $535-545/t cfr, mostly for Russian material, and at the higher price level for Turkish-origin billet. A regional trader has heard of billet transacted at $525/t cfr Philippines, while another says that buying activity is very slow.

19 99

20 00

200 1

2 00 2

2 003

20 04

20 05

200 6

2 007

2 008

20 09

1 6.0 1 4.0

29%

1 2.0 1 0.0

26%

8.0 6.0 4.0 2.0 19 98

199 9

200 0

20 01

200 2

200 3

200 4

200 5

2 00 6

200 7

200 8

2 00 9

4 .0 3 .5

Sin gapo re Ph ilip pin es

8% 8%

3 .0

7%

2 .5

2 .0 199 8

1 999

2 00 0

2 001

2 00 2

2 003

2 004

20 05

2 006

20 07

2 008

20 09

199 8

1 999

2 00 0

2 001

2 00 2

2 003

2 004

20 05

2 006

20 07

2 008

20 09

4 .0

8%

3 .5

3 .0 2 .5

Malaysia

2 .0

18%

16%

10 . 0 8 .0 6 .0 4 .0 2 .0

Steel Business Briefing, July 12, 2010

0 .0 19 98

Indon esia

19%

18%

199 9

200 0

2 001

2 00 2

2 003

20 04

20 05

20 06

200 7

2 00 8

2 009

2001

2002

2003

2004

2005

2006

2007

2008

2009

10. 0 8. 0 6. 0 4. 0 2. 0 0. 0 1998

2008

1999

2 000

2008

HEADLINES SEAISI, July 2010

Brief on ASEAN Steel Industry Performance in 2009 Apparent Steel Consumption (million tonnes)

SEAISI Member Countries Apparent Steel Consumption 250

Japan 200 South Korea 150

2009

Australia 100

ASEAN

AUS 3% KR 30%

20 09

20 07

20 05

20 03

19 99

20 01

-

VN 7% TW 7%

Taiw an

50

19 97

SG 2% TH 7%

19 95

JP 33%

MY 4% PH 2%

19 93

ID 5%

Apparent Steel Consumption (million tonnes) 50 Vietnam

45 40

Th ailand

35 Singapore

30 25

Ph ilippine s

20 15

M alaysia

10 Indonesia

5

•

•

•

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

-

Steel consumption in ASEAN registered 41.7 million tonnes, a declined of 9.6% y-o-y. However, in terms of steel use in the ten countries, ASEAN’s share surged from 22% in 2008 to 26% in 2009. Among the ASEAN countries, Thailand’s steel consumption registered a significant decline of 20% y-o-y to 10.75 million tonnes in 2009. However, Thailand remained the top steel consuming country in ASEAN. Vietnam was the only country in the group that experienced a positive growth in steel consumption in 2009. The country’s steel use surged by 30% to 10.6 million tonnes, almost on par with Thailand.

SEAISI Newsletter, July 2010

15