How to artificially inflate the value of commodities?

China May Buy Up Steel Stockpiles, Aid Mills, Li Says (Update1) 

By Helen Yuan and Lee Spears

Dec. 12 (Bloomberg) -- China's government may buy up steel stockpiles, offer subsidies for plant upgrades and give higher export rebates to help the nation's steel industry, the largest in the world, weather a "severe" slowdown, a minister said.

"Steelmakers are facing plunging prices with expensive raw-material stockpiles, the situation is severe," Minister of Industry and Information Li Yizhong said today at a conference in Beijing. The industry "needs government support," he said.

Mills in the world's fourth-largest economy including the biggest, Baosteel Group Corp., are grappling with a collapse in demand and prices as the global recession saps exports and domestic growth slows. The China Iron & Steel Association urged the government on Dec. 6 to buy up steel stockpiles.

"The government wants to help the steel industry bottom out," said Helen Lau, an analyst at Daiwa Securities Group Inc. "It's one of the key industries that supports GDP growth, so they're very interested in supporting it."

Clearing China's backlog of iron ore stockpiles will take until the end of March, the minister said. There's a total of 220 million metric tons, with 90 million tons held at ports, 30 million tons with steelmakers and 100 million tons held by traders, he said.

Steelmakers worldwide are reducing output as economies contract and demand plunges. ArcelorMittal South Africa Ltd., Africa's largest steelmaker and a unit of the world's biggest mill, ArcelorMittal, said yesterday it was cutting 1,000 contractor jobs and slashing capital expenditure next year.

Stimulus Package

China last month unveiled a 4 trillion yuan ($586 billion) stimulus package in housing, railways, roads and airports to bolster economic growth, raising expectations that steel and metal consumption may rebound.

The government will encourage domestic steel takeovers, Minister Li said today, reiterating existing government policy to support the emergence of larger, more-profitable mills and the closure of obsolete, polluting capacity.

The country's steel output this year may be 490 million metric tons, the minister said. That's 110 million tons less than capacity, and compares with forecast output of 540 million tons earlier this year from the Iron & Steel Association. Output in 2007 was 489 million tons.

Li's comments on iron ore echo remarks on Dec. 8 by Shan Shanghua, general secretary of China Iron & Steel Association, who said bigger Chinese mills don't need imports until the end of March, and some don't need supplies until the end of May.

China's 71 largest mills posted a combined loss of 5.8 billion yuan ($847 million) in October, the first time the entire industry has been money-losing, according to the industry association. Baosteel Group General Manager He Wenbo said last month that the company is facing its "most difficult" period since it was founded 30 years ago.

The price of hot-rolled coil, an industry benchmark, has plunged 39 percent to 3,653 yuan a ton from a record on June 5, according to the Beijing Antaike Information Development Co.

To contact the reporters for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net; Lee Spears in Beijing at lspears2@bloomberg.net
Last Updated: December 12, 2008 03:08 EST

Print


Terms of Service | Privacy Policy | Trademarks