Asian Steel & Materials
Weekly Monitor
Upcoming Results and Data Releases:
18 Mar: Sino Forest – FY 2008 (MS Est: EPS –
USUS$1.25, Consensus: USUS$1.29)
16-18 Mar: China zinc, lead trade data
18 Mar: JISF Steel Production data
20 Mar: China Moly – FY 2008 (MS Est: EPS –
Rmb0.46, Consensus: Rmb0.47)
Last Week’s News & Data Releases:
􀀮 China Feb. steel production at 40mt (+4% YoY)
􀀯 China Feb. steel net export at 0.5kt (-75% YoY)
􀀮 China Feb. iron ore net import 46.7mt (+22% YoY)
􀀮 China Feb. copper app cons at 574kt (+43% YoY)
􀀯 China Feb. PPI Down 4.5% YoY
China revises infrastructure component of Rmb4 tn
stimulus; continue to favor cement over steel
Steel:
• Increasing Chinese production underlines
oversupply
• China iron ore stocks up 5mt in 3 wks
• More Chinese mills idle blast furnaces in Tangshan
• China Steel Corp Feb. production 532,271t (-36%
YoY); sees no significant improvement in demand
• Chinese ship plate prices drop 8-13% MoM as
demand sinks; at ~US$530-560/t
• Japan: JFE Steel to close 2 blast furnaces;
substantial merit in curbing cost burden
Base and Precious Metals:
• China February copper production 320kt (+11%
YoY); likely to accentuate oversupply
• Western Mining FY2008 EPS- Rmb0.24 (-67%
YoY)
• Antam eyes lower FeNi costs with new power plant
Cement:
• Anhui Conch to invest Rmb1.2bn in W. China
• Asia Cement raises 2009 capex by 25% to Rmb2bn
Coal:
• China 2009 coking coal demand to fall by 50mt
• Shandong discovers 3bn tonnes of coking coal
reserves

Week’s Top Stories (Full Story):
China revises Rmb4 tn stimulus; continue to favor cement
over steel
Last Friday, China announced revisions to its Rmb4trn stimulus
plan, favouring consumption plays (affordable housing,
medical, etc) versus infrastructure (which was cut by
Rmb1.5trn from Rmb1.8trn). An interesting feature is the
Rmb210bn set aside for “innovative structural change projects”
which effectively will reduce excess production capacity.
The National Development Reform Commission (NDRC)
recently proposed a 16.7% cut in infrastructure spending, from
Rmb1.8 tn to Rmb1.5 tn for 2009. We believe this has negative
implications for materials demand and have therefore reduced
our bottom-up forecasts for incremental steel demand by
roughly 100bps for 2009.
Cement over Steel: We still expect growth in the cement
sector in 2009, but we have decreased our projection to
3.2% from 4.2% (for more details, refer to our note Reduced
Infrastructure Spending Slows Recovery, dated March 10,
2009). Steel demand now looks likely to contract by 5.5% in
2009 rather than the 4.4% we previously estimated. We
thus continue to regard the cement sector as best
positioned in the Chinese materials sector, followed by
non-ferrous metals and then steel, which has a more
obvious risk of oversupply.
Pricing and Earnings Risk Increasing: With this
downward revision to our demand forecast, we are
becoming even more concerned about industry oversupply,
reduced pricing power and lower earnings and will be
watching domestic pricing closely for any signs of
accelerating weakness.
China: Steel imports shoot up in February, exports drop
as production grows 4% YoY; underlines oversupply
China’s finished steel exports continued to drop in February, to
1.56 mn tonnes from 1.91mt in January. Meanwhile, arrivals of
imported finished steel rose to 1.09mt in February, up 0.22mt
from January. Semi-finished imports increased to 0.31mt, up
by 0.2mt month-on-month.
Traders believe steel imports in March could be even higher
than in February, as most of the imported materials are due to
arrive this month. However, most traders and mills have
stopped booking cheaper steel from countries such as Russia
and Ukraine because of a weakening domestic market.
February crude steel production was 40.4mt, +4% YoY, -3%
MoM. The number is higher than the 37.8mt indicated initially
by the China Iron & Steel Association (CISA). February daily
production was 1.44mt/d, ahead of January’s.33mt/d, as many
mills raised production to capitalize on the stronger pricing.
This is another data point that shows China to be oversupplied.
We forecast that, YoY, demand will contract 5.5% and
production will rise 2.4% in 2009 (based on Jan-February
numbers). Domestic over-production is already running at
7-8% for the first two months. With a weak export market, the
situation looks negative for the Chinese steel makers.
China iron ore stocks up 5mt in 3 wks as February imports
rise 43% MoM
Iron ore stockpiles at China's 22 major ports stood at 60.6
million tonnes on Friday, March 6, up 2.18% from February. 27,
while Indian iron ore stockpiles increased by 8.25% to 16.66
million tonnes, according to figures released by
Shanghai-based Mysteel (March 11, 2009).
With falling domestic steel product prices, imported iron ore
prices continued to fall during the week. Imported iron ore
trading volume remained low, showing that current prices are
still higher than domestic steel mills are willing to pay. China's
steel mills are still adopting a wait-and-see attitude towards
purchasing imported iron ore.
The average delivery price for Indian ore grading 63.5% stayed
between Rmb600 (US$87.76) and Rmb610 (US$89.22) per
tonne on March 6, down by Rmb20 (US$2.93) from February.
27, while the price of Indian ore grading 62% stood between
Rmb580 (US$84.83) and Rmb590 (US$86.30) per tonne on
March 6, down by Rmb5 (US$0.73) from February 27.
Iron ore freight rates from Brazil's Tubarao Port to Beilun and
Baoshan ports fell by 0.61% from February 26 to US$21.18 per
tonne on March 5, while freight rates from Western Australia to
Beilun and Baoshan ports stood at US$7.81 per tonne on
March 5, down 4.99% from February 26, according to the latest
information from Mysteel.
More Chinese mills idle blast furnaces in Tangshan;
utilization rates just above 80%
Between late February and this week more than 20 small- to
medium-sized blast furnaces – those with inner volumes above
450 cubic metres – were idled in northern China’s Tangshan
city as the mills faced pressure from the steel price slump that
began last month. (Steel Business Briefing: 11 March)
Most Tangshan mills had recovered their production last