China Steel Association: Steel Mills Missed Best Window Period

The environmental capacity is probably an unavoidable topic in the development of the national economy during the 12th Five-Year Plan period. The challenges encountered by the traditional steel industry as a “two-high” industry are more self-evident. The person in charge of the National Development and Reform Commission once said that during the “12th Five-Year Plan” period, 39 steel mills in the country will carry out “orderly relocation”. However, only from the aspects of Shougang's overall relocation faced with the difficulties encountered in the relocation of urban steel plants, their gains and losses, profits and drawbacks how? With this problem, the China Securities Journal reporter specially interviewed Chi Jingdong, deputy secretary-general of the China Iron and Steel Association.

China Securities Journal: How do you view the relocation plan for urban steel mills during the 12th Five-Year Plan period?

Chi Jingdong: Really implementing the relocation like Shougang, I am afraid that during the “12th Five-Year Plan” period, few families will be able to realize it, which is too difficult.

China Securities Journal: too difficult? Didn't the National Development and Reform Commission put forward that 39 urban steel mills should relocate? Haven't started to implement?

Chi Jingdong: At present, there are more than 70 large and medium-sized steel mills in the country, 39 urban steel mills, and 20 in provincial capitals and municipalities. In 2009, the total output of urban steel mills reached 228 million tons, accounting for 39.5% of the total output of large and medium-sized steel mills. This is a huge relocation plan. What the NDRC proposed is just "orderly relocation". Not all urban steel mills need to be relocated during the "12th Five-Year Plan" period.

China Securities Journal: Shougang has moved. Will future Baosteel and Guangzhou Steel have greater pressure for relocation?

Chi Jingdong: There is indeed pressure on steel mills in big cities. For example, Baosteel's output value accounted for 6.28% of Shanghai's industrial-scale enterprises in 2008, but Baosteel's energy use accounts for more than 25% of Shanghai's industrial-scale enterprises. Shanghai will certainly need to consider how much Baosteel's production value depends on. But the key is, where is the transfer of production capacity?

China Securities Journal: On the coast, has the Steel Association not been promoting the coastal layout?

Chi Jingdong: Yes. However, several important iron and steel bases have not yet been approved. This has made it impossible for steel mills to move. For example, Shijiazhuang Steel Works, although it has long been said to be relocated, but Huanghua Port has been occupied by private enterprises, and there is no place to transfer production capacity. It may only be Baosteel that now finds a foothold, and the special steel division of Baosteel, that is, the original Shanghai Steel Fifth Plant may choose to transfer to Fujian.

China Securities Journal: If the "12th Five-Year Plan" proposes to support the coastal layout of steel production capacity, is it conducive to the implementation of the relocation of steel mills?

Chi Jingdong: Policy liberalization is only one aspect. More importantly, there is sufficient market capacity to support the relocation of steel mills.

China Securities Journal: Relocation is a replacement of production capacity, which has a great impact on the total supply?

Chi Jingdong: If there is no certain expansion target, who will move to the coast? This is also one of the reasons why the country is not willing to release production capacity immediately. It fears that the supply will increase too quickly and result in more serious overcapacity.

China Securities Journal: If it is shut down first and then put into production, strictly equal replacement?

Chi Jingdong: The current market environment cannot support such a relocation investment by steel mills. In recent years, when the profits of steel mills do not exceed 200 yuan per ton, a new steel mill will frequently invest billions of dollars in investment. At the beginning of construction, it will require the use of a large number of banks. Once completed, there will be annual amortization depreciation. Several steel mills can afford such a market environment.

China Securities Journal: Do you mean that the current steel market can no longer support the relocation of urban steel mills?

Chi Jingdong: It can be said that the window period has passed. At the beginning of the 21st century, when the country made large-scale investment in fixed assets, the steel mills had profitable support for relocation, and they could earn money by building factories in more cost-effective areas. After 2008, affected by the financial crisis, coupled with the country's adjustment and transformation of development methods, the overall increase in demand for steel products is declining, allowing steel mills to relocate at this time, and the economic accounts do not come.

China Securities Journal: However, the environmental capacity of the first and second tier cities is limited. Is there a good solution?

Chi Jingdong: Throughout the world, there have been few successful cases of steel mill relocation. In the case of Shougang, the Caofeidian project has been losing money since it was put into operation. This year, it cannot stop losing. In this relocation, enterprises are using economic benefits in exchange for social benefits. From the current operating conditions, it cannot be said that the relocation of Shougang was successful.

China Securities Journal: In your opinion, what will happen to the steel industry during the 12th Five-Year Plan period?

Chi Jingdong: Now that Inland is still building a steel plant, the domestic production capacity is already saturated in view of steel consumption forecast by the Steel Association during the 12th Five-Year Plan period. Now that there are not more than 100 yuan of profit per ton of steel, it is necessary to squeeze out the profits of more than 100 yuan in the future before we can talk about cross-regional restructuring and relocation.