li xinchuang - china metallurgical industry planning

Development and Outlook of

Chinese Steel Industry

China Metallurgical Industry Planning and Research Institute

PLAN FOR FUTURE STUDY FOR DEVELOPMENT

March. 2017

Contents

Ⅰ Development of Chinese steel industry

Ⅱ

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

Excess capacity elimination of Chinese steel industry

Ⅲ Outlook of Chinese steel industry

Ⅳ MPI——your reliable partner

Ⅰ Development of Chinese steel industry

http://www.mpi1972.com

1800 ~ 1880: The crude steel output in England took up more than 50% of the world volume;

1880 ~ 1910: The steel industry in USA and Germany kept cropping up;

1910 ~ 1950: The crude steel output in USA reached 26.5 million tons which took up nearly 50% of the world

volume; the crude steel output in Germany reached 13.7 million tons which took up more than 20% of the world

volume;

1950 ~ 1970: The former Soviet Union surpassed Germany and became the world’s second largest producer;

1970 ~ 1989: The former Soviet Union became the world’s first producer; the steel industry in Japan kept cropping

up and ranked second in the world;

1989 ~ 1996: Upon disbandment of the former Soviet Union, Japanese steel industry ranked first in the world;

Chinese and South Korean steel industries kept cropping up. And Chinese steel industry ranked second in the world;

After 1996: Chinese steel industry maintained first in the world; in 2016, Chinese crude steel output took up 50.3%

of total output in the world.

1 Development of global steel industry


1800-1880 1910-1950 1953-1970 1970-1989 1989-1996 1996-2005

1 UK USA USASoviet Union

Japan China

2 USA GermanySoviet Union

Japan China Japan

3 Germany UK Germany USA USA USA

Country2015 2014

Rank Output Rank Output

China 1 803.8 1 822.8

Japan 2 105.2 2 110.7

India 3 89.4 4 87.3

USA 4 78.8 3 88.2

India surpassed the

USA as the third biggest

steel producer in 2015.



China

India

Africa

Southeast

Asia

Dri

ven b

y e

conom

ic d

evelo

pm

ent

UK

USA Japan

China

South KoreaGermany Soviet Union

The end of 19th century

Around 1945

Around 1970

Around 1995

Driv

en

by te

ch

no

log

ica

l ad

va

nce

me

nt


(4)

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

Stage 1: From the Second World War up to the beginning of 1970’s, the steel industry developed rapidly for long term

dominated by the Western countries.

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

fluctuation under influence of oil crisis, economic restructuring of the Western countries and disintegration of the Soviet Union.



Unit:

108 t

Stage 3: The world steel

industry grew again since 2000

driven by rapid development of

Chinese steel production and

consumption. The global crude

steel output increased from

850 million tons to 1.665 billion

tons within about 10 years,

among of which 690 million

tons increase provided by

China, accounted for 85.2% of

total growth.

In 2015, world crude steel

output was 1.62 billion tons

decreased by 2.8% year-on-

year. And in 2016, world crude

steel output was 1.6285 billion

tons increased by 0.8% year-

on-year.

From our point of view, the

world steel industry will enter

the fourth stage experiencing a

long period of adjustment.


7http://www.mpi1972.com

Chinese Steel Consumption in from 1980 to 2016

7.02亿吨

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

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

peak value 702 million tons in 2014. But the steel consumption decreased to 664

million tons in 2015 with 5.4% drop year-on-year, which was the first time since 1996.

Chinese actual steel consumption was 673 million tons in 2016 driven by automobile,

infrastructure and real estate, increased by 1.3% year-on-year.

0

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Un

it: 1

0,0

00

t

2 Chinese steel consumption and production

702 million tons


8 http://www.mpi1972.com

2 Chinese steel consumption and production


Phase 1: Fluctuating

development in the

initial stage

Phase 2 (7.9% increase on

average/year):

Stable development in the

beginning stage

Phase 3(14.2% increase

on average/year): Leap-forward

development in the

accelerating stage

Phase 4: Innovative development in

the transition stage (transition period

from Phase 3 to Phase 4)

Unit: 104t

9

3 Competitiveness of Chinese steel industry


The steel industry, as one of the most competitive Chinese

manufacturing industries, has already achieved “5G”.

Good

price

Good

product Good

brand

Good

service

Good

scale

“5G”

Chinese steel industry enjoys the world’s

largest and most dynamic domestic

demand.

3. Competitiveness of Chinese steel industry – the strongest domestic demand worldwide


In 2015, Chinese steel consumption

was 664 million tons, which

accounted for 48.9% of global steel

consumption.

Currently, Chinese economy is in a

reasonable development interval

represented by constant release of

reform effect and generation of new

growth drive. Against the new normal

of slow economic growth, China has

greatly promoted the stable and

balanced development of domestic

demand and promoted the investment

and policy guidance in research &

development, high-end manufacturing

industry, ecological environmental

protection and infrastructure

construction. The stable development

of traditional industries and emerging

of new industries are expected to

maintain Chinese steel consumption

in a vigorous state over a long term.

Building360

million tons

Ship building

13.5 million tons Automobile

49.5 million tons

Machinery 130 million

tons

Railway4.8 million

tonsElectric

appliances 10.8 million

tons

Energy resources32 million

tons

Container5.5 million tons



The complete industrial

system has led to great

development of

Chinese steel industry


Competitive steel

enterprises,

such as BaoSteel, HBIS,

ShaSteel etc.

Third party professional

consulting institutions

such as MPI

Upper stream supporting

industries including iron ore,

coal, power etc

Down stream consumers

including building, machinery,

automobile etc

Cultivation and scientific research

base of metallurgical talents such as

University of Science and Technology

Beijing, Northeast University, Central

Iron & Steel Research Institute etc.

Trade

Auxiliary

materials

Agent

Engineering

Facilities

Construction



Advanced process and technical equipment and concept of systemization and

integration have laid a solid foundation for the rapid development of Chinese

steel industry.


Green development: The energy

saving and environmental

protection technologies and

facilities are applied widely.

Systemization: The integrated

and systematic optimization and

upgrading are being more and

more valued.

Continuity: The continuous

casting and rolling

processes and technologies

are optimized constantly,

and the process

completeness is constantly

upgraded.

Automation: One-key automatic steel

making as well as Level II and Level III of steel rolling are applied widely.

Precision: The product

dimension control and

controlled rolling and

cooling technologies

are promoted rapidly.

Large scale: The ratio of

advanced capacity to total

capacity of coking, sintering, iron

making, steel making and steel

rolling increased constantly.


Process and

Technical

Equipments

13


Consulting

institute

Innovative

platform

University

and institute

The whole industry has established 16

national key laboratories, 5 project

laboratories, 12 project technical centers,

10 project research centers, 33

enterprise technical centers and 17

innovative enterprises.

Professional colleges: University of Science and

Technology Beijing; Northeastern University

Professional scientific research institutions: Central Iron

& Steel Research Institute ; Institute of Process Engineering

Enterprise research institutes: BaoSteel research institute

and WISCO research institute

Professional consulting institution:

MPI

Professional trading group:

Minmetals

Professional design and

construction group: MCC

Professional technical staff

Professional management staff

Professional research and

development staff

Professional

consulting team

Professional

training team

Professional design

team

Professional

construction team

Professional technical

staffs

Professional technical

transfer staffs

Professional project

application staffs



4 Chinese steel industry in 2016——Production

In 2016, Chinese crude steel output was

808 million tons, pig iron output was 701

million tons and steel product output was

1.138 billion tons (including repeated

products), increased slightly by 1.2%,

0.7% and 2.3% respectively.

From January to February 2017, Chinese

crude steel output was 128.77 million tons

increased by 5.8% year-on-year. And daily

crude steel output was 2.1825 million tons

increased by 0.65% based on the same in

December 2016.

In February 2017, PMI of Chinese steel industry expanded to 51.4% based on 1.7 points growth

month-on-month, which was the highest level since May 2016. Except for new export order and final

products inventory, another ten indexes rose up to more than 50% showing a better condition of steel

industry in aspects of production, procurement, sale, employees etc.



China became the net steel exporter for the first time in 2006 since the foundation of PRC. Accumulative Chinese

steel export exceeded the import only up to 2014. And Chinese steel export expanded continuously after the

international financial crisis. In 2015, Chinese steel net export was 99.62 million tons. In 2016, Chinese steel export

was 108.43 million tons decreased by 3.5% year-on-year, and steel import was 13.21million tons increased by

3.4% year-on-year. The iron ore and ore fines import was 1.024 billion tons increased by 7.5% year-on-year.

According to the data released by the Customs, Chinese steel export was 5.75 million tons in February 2017

decreased by 1.67 million tons comparing with that in January showing continuous drop in the past three months,

and decreased by 29.1% year-on-year. From January to February 2017, Chinese steel export was 13.17 million

tons decreased by 25.7% year-on-year, while steel import was 2.18 million tons increased by 17.6% year-on-

year.

In 1979, Chinese steel export was 368,000

tons, and the same increased to 112.4 million

tons in 2015 hitting a new historical high,

which was 305 times of the export in 1979.

Significant growth of Chinese steel export

attributed to improvement of international

competitiveness consisting of high quality,

good service and affordable price.

Chinese steel import show a stable trend.

From 1979 up to 2003, Chinese steel import

rose with fluctuation. In 1980, Chinese steel

import was 5.01 million tons, and the number

up to 37.17 million tons in 2003 hitting a new

historical high. From 2004 up to 2016, steel

import was maintained at about 13 million

tons.

0

2000

4000

6000

8000

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12000

单位：万吨

出口量进口量

Import

4 Chinese steel industry in 2016——Import & Export


Export


Regulation of Adjustment of Chinese Steel Industry (Draft) —— Steel products and

service fully satisfy growth of national economy.

Adjustment and Upgrading Plan of the Steel Industry in the 13th Five-year Period——

Domestic steel occupies more than 99% market basically meet requirement of economic

growth and social development.

In 2016, there are 49 trade cases against Chinese steel export increased by 32.4%

comparing with that in 2015 e.g. temporary anti-dumping duties is launched by Indian

government; the Europe Union is nearly completed anti-dumping investigation against flat

products covering cold rolled coil, hot rolled coil, medium/heavy plate etc; the USA

launches 337 investigation against Chinese carbon alloy steel.





More than 87% comes from

Japan, South Korea and Taiwan.

In 2016, Chinese steel import was

13.214 million tons mainly came from

Japan, South Korea and Taiwan, from

which the steel import was 11.505

million tons accounted for 87.1% of total

import.

No CountryImport in

Dec.

Import from

Jan. to Dec

Accumulative

import in the

same period of

2015

Accumulative

growth/drop

Accumulative

increase/decrease

（%）

1 Japan 51.2 553.3 548.3 5.0 0.92

2 South Korea 39.2 440.0 399.1 40.9 10.25

3Taiwan,

China13.9 157.2 157.9 -0.7 -0.45

4 Germany 4.3 51.1 48.6 2.4 5.04

5 France 1.3 17.3 18.5 -1.2 -6.42

6 Others 9.0 102.6 106.1 -3.4 -3.2

Total 119.0 1321.4 1278.3 43.1 3.37

Export mainly to South Korea,

Vietnam, Philippines, Thailand

etc.

In 2016, Chinese steel export was

108.49 million tons mainly to South

Korea, Vietnam, Philippines, Thailand,

Indonesia etc.

In 2016, export of Chinese steel

product was confronted with 48 cases

of trade investigation increased by

29.7% year-on-year.

No CountryExport

in Dec.

Export from

Jan. to Dec.

Accumulative

export in the

same period of

2015

Accumulative

growth/drop

Accumulative

increase/decrease

（%）

1 South Korea 104.8 1433.7 1349.3 84.3 6.25

2 Vietnam 80.3 1166.5 1014.9 151.6 14.94

3 Philippines 53.2 651.9 560.9 90.9 16.21

4 Thailand 31.2 620.8 473.1 147.7 31.22

5 Indonesia 55.4 582.9 510.5 72.4 14.18

6 Malaysia 18.8 334.1 331.2 2.9 0.87

7 India 26.9 331.5 476.1 -144.6 -30.37

8 Saudi Arab 11.8 309.8 265.9 43.9 16.52

9 Singapore 16.4 296.3 322.5 -26.2 -8.13

10 Pakistan 25.8 291.0 255.5 35.5 13.89

11 Others 355.6 4830.8 5679.2 -848.4 -14.9

Total 780.2 10849.2 11239.2 -390.0 -3.47

Import

Export



In 2016, members of CISA made sales revenue

of 2.8 trillion yuan with total profit of 30.378

billion yuan. The return on sales was 1.08%

increased by 3.81 percentage points year-on-

year.

4 Chinese steel industry in 2016—— Profitability

Although changed from loss into

profit, the profitability level is still low.

Profitability of Large/Medium-scale Steel Enterprises from

Jan 2015 to Dec 2016

Change of Sales Revenue of Large/Medium-scale Steel

Enterprises in 2016

Change of Debt Ratio of Large/Medium –scale Steel

Enterprises from Jan 2015 to Dec 2016



4 Chinese steel industry in 2016—— Investment

In 2016, investment for the ferrous metals

smelting and extruding industry was totally

416.1 billion yuan decreased by 9.4 billion yuan

with 2.2% drop.

In 2016, ferrous metals mining and dressing

industry has completed the investment of 97.8

billion yuan decreased by 28.4% year-on-year.

Excess capacity elimination promoted by the

central government has already presented

remarkable progress. Newly-built capacity was

prohibited strictly, and investment dropped

accordingly.

Investment for the steel industry dropped


Change of Investment for Ferrous Metals Smelting and Extruding

Industry from Jan to Dec 2016

Change of Investment Growth for Ferrous Metals Smelting and

Extruding Industry from Jan to Dec 2016

InvestmentGrowth y-o-y

Change of Investment for Ferrous Metals Mining and

Dressing Industry from Jan to Dec 2016

InvestmentGrowth y-o-y

State

Steel

Ⅱ Excess capacity elimination of Chinese steel industry


Excess capacity of the steel industry is the common problem worldwide, not only the story in

Chinese market. The world steel industry should solve the problem together instead of blame

Chinese market only.

During the 12th Five-year Period, China has already removed iron making capacity of 90.89 million

tons and steel making capacity of 94.86 million tons, exceeded 44.3% and 50.6% respectively

based on the target of 63 million tons, showing a practical result of excess capacity elimination.

Backward Capacity Elimination of the Steel Industry from 2011 to 2015

Year 2011 2012 2013 2014 2015 合计

Iron making

（104 t）3,192 1,078 618 2,823 1,378 9,089

Steel making

（104 t）2,846 937 884 3,113 1,706 9,486

1 Excess capacity elimination in the 12th Five-year


Notes: Capacity mentioned above are released jointly by MIIT and Bureau of Energy Resources, among of which data in 2015 is

statistics not been released yet.


One target, four tasks and five supporting policies were formulated in the Guideline of

Excess Capacity Elimination of the Steel Industry released by the State Council on

February 4th 2016.

2 Regulations of excess capacity elimination


TargetRemove 100-150 million tons crude steel

capacity within 5 years from 2016.

Main Tasks

No newly-built

capacity permitted

Remove excess

capacityStrict enforcement

and supervision

Promote upgrading of

the steel industry

Supporting Policies

Subsidies Taxation Financing support

Staff resettlement Flexible use of land

China gave a

good example of

excess capacity

elimination by

strong

determination,

unwavering

confidence and

perseverance to

demonstrate

responsibility of

a great power.


Eliminate the capacity, not comply with regulations, industrial policies or criterions by

means of strict enforcement and supervision in environmental protection, energy

resources, quality, safety and technologies in order to promote healthy and sustainable

development of steel enterprises, which represented by more space given by

environmental protection, high profitability contributed by energy conservation, big market

share relied on quality and brand, substantial security supported by safe production and

solid foundation depended on technologies improvement.

Provide a smooth channel to encourage steel enterprises to remove capacity by

means of reduction on the enterprises’ own initiative, M & A, transformation,

international cooperation etc emphasizing the enterprises without production or

cannot survive. It is also strictly prohibited to restart the production once market

becomes better.

2 Regulations of excess capacity elimination



A signed article titled Economic Openness Serves Everyone Better by Mr. Li Keqiang, Premier of the State Council of the People‘s Republic of China as published on January 27th 2017.

Structural reform showing positive results.

In 2016, China has already removed excess steel capacity of more

than 65 million tons, coal capacity of more than 290 million tons.

It is proposed to further eliminate steel capacity of 140 million tons

and coal capacity of 800 million tons in the coming 3-5 years to make

sure the healthy level of industrial development.

Employment training is available for transferred staff by joint effort

of government and enterprises. 700,000 employees have been

rearranged in 2016.

3 Achievements of excess capacity elimination in 2016

Exceeded 44.4% of target showing a periodical achievement

of excess capacity elimination of steel and coal industry.



4 Guidance of excess capacity elimination

Year 2017 is an important time to implement Development Plan in

the 13th Five-year and deepen Supply-side Structural Reform.

Further promote excess capacity elimination of steel and coal

industry.

Remove zombie companies.

Strictly implement environmental, energy, quality, safety etc

regulations and standards.

Promote M & A

Deal with the debt and staff transfer properly

Avoid reproduction of removed capacity

Implement every tasks already

prepared and complete policies and

measures complying with new

conditions and problems to try to get

practical results of five tasks.

（Dec14-16th 2016）


Central Economic Work Conference

Supply-side Structural Reform

Further excess capacity elimination of the steel industry

accelerate exit and close of zombie companies

remove capacity failure to comply with environmental, quality,

energy, water consumption and safety standards.

Capacity of backward rebar produced by induction

furnace must be removed completely; backward capacity

needed to be eliminated must be removed.



Ex

ce

ss

Ca

pa

cit

y

Elim

ina

tio

n in

20

17

Fight for excess capacity elimination by common view, firm

determination, strict law enforcement and comprehensive

administrative management.

According to the Report on the

Work of the Government, it is

proposed to further remove steel

capacity of about 50 million tons.




Structural adjustment and modification

projects must comply with principle of

reducing replacement.

Steel projects to be built or under

construction, which already been

approved by central or local

government must comply with principle

of reducing replacement.

Ratio of reducing replacement in Beijing-Tianjin-Hebei, Yangtze

Delta and Pearl River Delta should be 1:1.25.

Eliminated capacity in and before 2015, backward capacity, capacity

listed in the reduction program as well as eliminated capacity supported

by subsidies can not be considered for replacement.

Adjustment and Upgrading Plan of

the Steel Industry (2016-2020)



5 Policies prospect

How the industrial policies make force?

What will be the important directions of structural

adjustment of the steel industry?


29

Environmental measure is one of the most effective way to eliminate

excess capacity.

-- Steel companies in Beijing-Tianjin-Hebei must apply for new discharge permit up to

the end of October, otherwise can not production any more.

-- Apply for new discharge permit, but failure to follow the items listed in the permit, will

be determined as violation of environmental regulations.

-- Assessment of emission standards of the steel industry

-- Existing standards should be strengthened further

5 Policies prospect

New discharge permit

Stricter emission standards



5 Policies prospect

Improve green and low carbon development regulation system

— The central government is formulating the Regulation of Coping with Climate Change

and supported rules. As an important carbon emission industry, the steel industry will

also formulate codes accordingly such as Action Plan on Coping with Climate Change,

Carbon Trade Administration of the Steel Industry etc.

— MIIT has proposed to establish a green manufacturing system in 2016 covering

green plant, green product, green industrial zone and green supply chain.

Promote excess capacity elimination by economic measures

— In 2017, NDRC and MIIT jointly issued Notice on Promotion of Supply-side Reform

of the Steel Industry by Economic Measures emphasizing adoption of differential power

price to promote excess capacity elimination of the steel industry.



6 Improvement of competitiveness

Field Index Illustration

Basic

competitiveness

Scale

Crude steel output

Scale and capacity utilization。Sales revenue

Capacity utilization rate

Technical

level

Process equipments

Materials basis and support ability

Intelligence

Raw

materials

and fuel

security

Procurement and management of iron ore,

scrap etc.

Procurement and management of coal,

coke etc

Development

competitiveness

Human

resources

Labor production value Labor production value efficiency

Per capita income Human resources value

Productivity of main business Productivity of steel making

R & D and

innovation

R＆D investment R & D cost and staff arrangement

Effective patent Number of intellectual property right

Service ServiceCoordination with downstream customers and

value-added of business

Environm

ental

Energy efficiency Environmental level and restriction of

environmental issues imposed to the enterpriseEmission

Logistics Logistics efficiency and cost Impact of logistics on competitiveness

Performance

competitiveness

Total profitTotal profit

ProfitabilityTax

Profitabilit

y

Sales profit margin Margin

ROA Return on assets

Capital

chain

Cash flow Cash flow

Debt ratio Turnover, capital chain and capital management

Quick ratioRepayment ability

Current ratio



6 Improvement of competitiveness


Ranking of Competitiveness of Steel Companies

Output of Different Ranking

Proportion of Output of Different Ranking

Ⅲ Outlook of Chinese steel industry


Forecast of steel demand

1 Forecast of Chinese steel demand in 2017

Chinese steel demand in 2017 is forecasted by means of consumption coefficient and

down stream industries consumption. It is predicted that Chinese steel demand in 2017

will be 660 million tons decreased by 1.9% year-on-year.

No. MethodSteel consumption in

2016 (108 t)

Steel demand in

2017 (108 t)Weight

1Consumption

coefficient6.79 6.64 0.4

2

Down stream

industries

consumption

6.64 6.58 0.6

Forecast 6.73 6.60

Forecast of Chinese Steel Consumption in 2017



35

Demand: pig iron output including DRI increased

from 860 million tons in 2005 to 1.28 billion tons in

2013, and then showing a downturn. In 2016, pig

iron output including DRI was 1.22 billion tons

consuming iron ore (TFe 62%) of about 1.93 billion

tons decreased slightly by 0.4% year-on-year.

Supply: world iron ore output increased

from 1.31 billion tons in 2005 to 2.01 billion

tons in 2015. In 2016, iron ore output

increased slightly to about 2.05 billion tons.

2 Iron ore supply, demand and price


Iron ore demand / 104t Pig iron output/104 t

World iron ore output/108 t Growth year-on-year


Supply (by countries): In 2016,

Australia and Brazil exported iron ore of

about 843 million tons and 374 million tons

increased by about 4% and 2.1%

respectively.

Although excess supply relieved a little bit, the world iron ore market will still show an oversupply.

Supply and demand of the iron ore market will be adjusted to a new balance with fluctuation.

Supply (by companies): In 2016, top 4 producers

all increased iron ore output comparing with that in 2015,

total output of which was about 1.026 billion tons,

increased by 2.5% year-on-year. It is predicted that

world iron ore export will be about 1.52 billion tons with

slight growth.



Demand:

1.107 billion tons

(output of pig iron

is 700 million tons)

increased slightly

by 0.7% year-on-

year.


37

• More imported iron ore

• High port inventories; growth of

inventory hit the highest level in the

past 5 years.

• import Iron ore independence level

up to 87.3%

• Imported ore has been and will be the

most important raw materials

guarantee for Chinese steel industry

over a long period of time.

Supply

Demand

Iron ore supply

and demand in

China in 2016

Domestic ore:

1.281 billion

tons raw ore,

decreased by

3.0% year-on-

year.

+

Iron ore import:

1.024 billion tons

increased by 7.5%

year-on-year

Inventory on 17th

March,2017

Total: 131.82 million

tons at ports; 42.65

million tons at steel

plants.




38

Four

trends

Oversupply of the world iron ore market last for long-term Rely on imported iron ore last for long-term

Iron ore price maintained at lower level with

fluctuation over a long period of timeScrap to replace iron ore step by step

Supply of top 4 nearly keep the same in 2017.

Considering capacity expansion of about 30 million

tons of top 4 and some newly started projects e.g.

Roy Hill, it is predicted that world iron ore supply

will increase by about 50 million tons. Complying

with reduction of Chinese steel industry, it is

inevitable to see a downturn of iron ore demand,

which can not be compensated by other countries

or regions over a short term. Thus over supply will

still be the condition of world iron ore market.

Average producing cost of key Chinese

miners is at high level, which nearly 2-3 times

of the same of top miners in the world, shows

weak competitiveness. China still requires

huge amount of iron ore although capacity

reduction of steel industry. Chinese market will

be served mainly by imported iron ore over a

long period of time.

In 2017, iron ore price is forecasted

to go up and then falling down. The

iron ore price is prospected to be

fluctuated between 55 USD to 90

USD. It is predicted that the average

price will be about 65 USD.

Scrap output will increase fast in 5-

15 years, which will become an

important supplement of iron ore.



702 million tons in 2014




Chinese steel demand up to 2020 and 2030 is predicted based on analysis of down stream

industries and GDP consumption intensity. From a medium/long-term view, Chinese steel

consumption will show a peak round and descending channel, as well as fluctuation and

rebound in individual year will not be excluded.

Medium/Long-

term forecast

3 Outlook of Chinese steel industry——en era of reduction

http://www.mpi1972.com39

The subject of development of the steel industry will be changed from

increase and expansion into reduction and adjustment.

An era of reduction and adjustment with fluctuation and rebound.


40

Unit: 104 t

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

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

Pig iron production presents the same characteristics, and average declining rate of output of pig iron in

long period will be faster than that of crude steel with gradual increase of scrap. From the perspective of

long term, coke and iron ore demand is in the transition period entering down going channel.

Based on the judgment that global steel consumption will maintain slight increase in the next 5~15

years, considering the impact of declining demand of iron ore in China and of increasing demand of iron

ore in other areas, global iron ore demand in the future will show a general trend of fluctuant declining,

but will still maintain at a high level.




Crude steel outputPig iron output

Scrap consumption for steel making

Scrap consumption for steel

making

Iron ore demand


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

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

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

Survival of the fittest (the true powerful enterprise emerged)

Diversified operation

Innovative development (technical innovation such as internet, new energy

resources etc)



Environmental friendly

Quality first

Differential

Diversified operation

InternationalizationIntelligent

Service oriented

Standardization

Coordination


43

4.1 Development targets

Growth of

industrial added

value

Target in the 13th Five-year Period

Crude steel

capacity (108 t)

Capacity

utilization

rate

Industrial

concentration

rate (TOP10)

Annual

growth

Pilot base of

intelligent

manufacturing

Productivity of

main business

(t steel/capita.a)

Total energy

consumption

Decreased by

more 10%

Fresh water

consumption per ton

steel production (m3)

44

4.1 Development targets

Comprehensive energy

consumption per ton steel

production (Kg standard coal)

Total pollutant emission

Decreased by more

than 15%SO2

emission

per ton steel

production

(kg)

Slag comprehensive

utilization rate

Ratio of R & D to revenue

of main business

Ratio of structural steel

to construction steel

Key indicators of

integration of

industrialization

and informatization

33% Comprehensive integrated large-scale enterprises ≥ 44%

29% Management and control integrated large-scale enterprises ≥ 42%

43% Supply-Production-Sale integrated large-scale enterprises ≥ 50%

45

4.2 Main Tasks

1. Remove

overcapacity

positively and reliably

No newly-built steel capacity permitted

Remove overcapacity as per rules and

regulations.

Reduce debt ratio of steel enterprises

2. Adjust and improve

layout of the steel industry

No new

costal base

permitted.

Carry out

research on

withdraw and

replacement of

city steel plant

in Hebei

Province.

3. Improve self-independent

innovation

Establish national

innovation platform for the

steel industry.

Set up technological

innovation demonstration

enterprise.

4. Improve effective

steel supply

Promote service-oriented

manufacturing.

Improve quality.

Strengthen the brand

promotion.

5. Develop intelligent manufacturingEncourage advantageous

enterprises to try to set up

industrial internet platform.

6. Promote green manufacturing

Execute green modification and upgrading.

Promote development of circular economy.

Introduce green consumption.

46

4.2 Main Tasks

7. Promote M&A

Establish some world-class

professional enterprises in stainless

steel, special steel, seamless

stainless steel pipe industry etc.

8. Promote open policy

Promote international industrial cooperation

Improve international management level

9. Strengthen iron ore

security

Establish new supply security system

based on resources home and abroad.

Promote pricing system reflecting the

relationship between supply and

demand objectively and complying with

varied parties’ interest.

Encourage uncompetitive domestic iron ore

makers to stop production and exit the market.

10. Establish a fair

competition

environment

Comply with environmental

protection, quality control,

energy consumption and safety

regulations.

Strengthen negotiation and

self-discipline to protect from

disordered and malignant

competition.


No newly built base in the costal area; support integrated development based on existing

base to improve quality and efficiency.

Remove inland enterprises without market competitiveness as per regional market volume

and resources security; support leading enterprises to survive.

◆ Beijing-Tianjin-Hebei & Yangtze Delta: Adjust and optimize inland enterprises by means of M

& A to eliminate excess capacity; main steel producing zone in Hebei should carry out research

on integrated exit and replacement of city steel plants based on existing costal steel base to

achieve development with reduction.

◆ Middle & Western Area; Northeastern Industrial Base: Implement regional integration to

reduce number of enterprises and eliminate excess steel capacity.

◆ Southeastern costal area: Construct high-quality costal steel base such as Zhanjiang,

Fangchenggang etc to adjust industrial layout nationwide.

◆ City steel plants: Remove steel plants with weak competitiveness and great difficulty of

modification; steel plants complying with regional development plan implement strategy of

green and harmonic development; relocation of city steel plants under progress must be

executed as per reduction principle.

4.3 Industrial layout optimization


48


4.4 Improve independent innovation

Enterprises: main drive

Engineering companies: bridge and promoter

Universities and research institutes: pilot

Focus

Smelting technologies with

Low energy consumption

Rolling technologies with

low energy consumption and

high efficiency

Whole process quality

inspection, forecast and

diagnosis; intelligent control

technologies.

Product upgrading e.g.

high-end equipment steel

etc.

Role Key

Key producing

technologies

Key quality control

technologies

Key intelligent

manufacturing technologies

Establish national industrial innovative platform by means of

market mechanism and diversified cooperation combining

production, study, research and application to improve original

and integrated innovation.


49


4.5 Improve effective steel supply

Promote service-oriented manufacturing:

Establish customer oriented philosophy and service awareness to promote steel enterprises changed from

manufacturer into service provider.

Steel for key

basic

components

Steel for

marine project

and high tech

ship building

Steel for

advanced

railway

transportation

Steel

for new

energy

autoSteel for

power

facilities

Key products



Consolidate infrastructure of intelligent manufacturing

Infrastructure

1

2

3

Establish industrial internet.

Emphasize network information platform, standard

system and information security system of intelligent

manufacturing.

Establish CPS to achieve integration of product design,

resources utilization and manufacturing process in order to

carry out dynamic and timely optimization of quality, timeliness

and producing cost.

4.6 Develop intelligent manufacturing



Establish intelligent manufacturing system of whole process

coordinated

manufacturing

Quality

monitoringEnergy cost

Establish customer-oriented intelligent manufacturing covering the whole

industrial chain to achieve further integration of industrialization and informization.

Administrative

management

Customer

serviceEstablish a coordinated system realizing

dynamic monitoring, feedback and optimization.

Data integration

platformApplication

development platformProduction

arrangement and

execution platform

Key technologies and process equipments

Materials intelligent design and optimization; on-line quality inspection; quality

inspection and on-line optimization; accurate production control; equipments

status on-line monitoring; advanced process facilities.

Establish intelligent manufacturing system covering the whole process

to achieve scale production and customized manufacturing.

4.7 Develop intelligent manufacturing



General principle: six in one

绿色物流

4.8 Green manufacturing


Green mine Green logistics

Green manufacturing

Green procurement Green industryGreen product


General principle: Take establishment of world-class steel power with

Chinese characteristics as the core task, formation of concentrated,

professional and efficient industrial configuration as the main orientation,

support, guide and encourage M & A of steel enterprises.

◆ Promote Cooperation centered on advantageous products

Develop competitiveness and innovative ability of varied products such as automobile plate,

electrical steel, household appliance sheet, ship building plate, pipe steel, oil pipe etc, and

encourage steel companies to remove low efficiency capacity.

◆ Guide and encourage restructuring and capacity reduction of steel

enterprises in specific regions with serious excess capacity and

homogeneous disordered competition

4.9 M & A



4.10 Further international cooperation

Emphasize the countries along with “One Belt One Road” with better resources condition,

sufficient supporting facilities and great market potential.

Encourage advanced Chinese steel companies to go overseas to build steel producing base

and manufacturing & distribution center to push export of advanced equipments, technologies and

management.

Promote international capacity cooperation

Further international cooperation and promote trade optimization and upgrading.

Encourage advanced overseas companies to join M & A, layout adjustment etc of Chinese steel

industry by means of stock participation or holding.

Support Chinese companies to establish sale and R & D service system worldwide by means of

overseas merging, stock investment etc.

Encourage cooperation between Chinese and overseas companies to develop the third party

market to try to establish and maintain a fair and orderly steel export system.

Improve international management level


Ⅳ MPI——your reliable partner

MPI——your reliable partner

56

Consulting headquarter of

government institutions

Guide in steel industry

Brain trust of enterprises planning

Authorized qualification: MPI was established

under the approval of the State Council in1972, which is

one of the first engineering consulting institutes with First-

grade qualifications.

Excellent references: MPI has already finished

more than 5,000 projects providing service for more than

200 government departments, industrial associations, more

than 400 metallurgical companies and more than 50

overseas enterprises.

Human resources: The employees who have

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

the staff, those who have been awarded high-level

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

are state registered consulting engineers, senior

technicians or who enjoy special government subsidy

account for 50% of the staff.

57


Advantages of MPI

Familiar with market situation, clients’ requirements and

development of down-stream industries

Understand government policies

Rich experience in consulting of metallurgical

industry

Energetic team with specialties covering

whole process of metallurgical industry

Strong innovative power, quick response, high efficiency

Client-oriented, wide range of contacts, integrated service


Planning and

Consulting

Standardization

Intelligent

Manufacturing

59


Version

ExtensionPracticability

Velocity

Satisfaction

60


Idea of Five-High-level

Excellent teamQuick response

61


MPI’s concepts promoting in the whole industry

62

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（plus）



High-end forums

MPI organizes five forums such as China Steel Development Summit, China Steel Energy Saving and

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

Business Development Conference and China Steel Raw Materials Summit.

2017 8th China Steel Development Summit

Time

April 12th 2017 for registration; April 13th for the Summit from 8:00 am

Venue

Beijing

Theme

Further Excess Capacity Elimination to Improve Competitiveness

Topics

—— Analysis on supply side structural reform and macro-economic development

—— Development route of further excess capacity elimination and competitiveness

improvement

—— Policies requirements of excess capacity elimination in 2017

—— Status , environment and response of steel international trade

—— Promote transformation and upgrading of the steel industry in virtue of development of

standardization and intelligence

—— Introduction of adjustment and transformation of regional steel industry

—— Experience share of advanced steel companies

—— One Belt One Road implementation supported by political financing

—— Introduction of investment opportunities of Iran, India, South Africa etc


MPI’s clients

MPI’s clients

66

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

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

MPI’s clients

67

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

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

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

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


Consulting headquarter

of government

institutions

MPI undertook basic

research of preparation of

development plan of steel

industry from the 5th Five-

Year Period up to the 12th

Five-Year Period. MPI also

participated in formulation

of important industrial

policies such as

Development Policy of the

Steel Industry, Adjustment

and Rejuvenation Plan of

the Steel Industry etc. MPI

has assisted MIIT

completing the research on

formulation of development

plan of the steel industry in

the 13th Five-Year Period.


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

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

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

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

Brain trust of enterprise planning: MPI has already accomplished over 5,000 cases of general planning

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

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

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

plan for many Chinese steel companies.

Specific plan helping companies to improve competitiveness

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

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

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

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

resources optimization etc.

Development plan in the 13th Five-year Period

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

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

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

70



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

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

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

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

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

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

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

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

▲President Li Xinchuang had a conversation with

Cameroon mining minister.

▲ President Li Xinchuang had a conversation with

Venezuela mining minister.


China Steel Series Report

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

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

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

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

Information service

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

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

convenient and comprehensive service.

Thank you for your attention！

Address: http://www.mpi1972.com

[email protected]