CHINA IRON AND STEEL SECTOR 2019 Q1 An EMIS Insights Industry Report Any redistribution of this information is strictly prohibited. Copyright © 2019 EMIS, all rights reserved. CONTACT US www.emis.com FOLLOW US ABBREVIATIONS AD Antidumping Duty CISA China Iron and Steel Association CSPI China Steel Price Index GAC General Administration of Customs MEE Ministry of Ecology and Environment MEP Ministry of Environmental Protection MIIT Ministry of Industry and Information Technology MOF Ministry of Finance MOFCOM Ministry of Commerce MPI China Metallurgical Industry Planning and Research Institute NBS National Bureau of Statistics NDRC National Development and Reform Commission Any redistribution of this information is strictly prohibited. Copyright © 2019 EMIS, all rights reserved. 01 EXECUTIVE SUMMARY p.4 Sector in Numbers Sector Overview Sector Snapshot Driving Forces Restraining Forces 02 SECTOR IN FOCUS p.11 Quarterly Update China Iron & Steel Q4 2018 Quarterly Summary Sector Outlook Sector Highlights Main Sector Indicators Top M&A Deals M&A Activity, Q1 2018 – Q1 2019 03 COMPETITIVE LANDSCAPE p.21 Highlights Main Players Top Companies 04 COMPANIES IN FOCUS p.26 Baoshan Iron and Steel Co Ltd Hbis Co Ltd Hunan Valin Steel Co Ltd Maanshan Iron and Steel Co Ltd Shanxi Taigang Stainless Steel Co Ltd 05 REGULATORY ENVIRONMENT p.42 Government Policy Iron & Steel Plan 2016 – 2020 06 STEEL PRODUCTION p.46 Focus Point - Steel Products Output by Region Highlights Main Events Subsector Statistics CONTENTS CHINA IRON AND STEEL SECTOR 2019 Q1 An EMIS Insights Industry Report CONTENTS 01 EXECUTIVE SUMMARY Any redistribution of this information is strictly prohibited. Copyright © 2019 EMIS, all rights reserved. 4 01 EXECUTIVE SUMMARY CONTENTS Sector in Numbers 1,106mn 928mn 771mn tonnes tonnes tonnes Steel Products Crude Steel Pig Iron Output Production Production 1,090mn 140mn 53mn tonnes tonnes tonnes Steel Product Crude Steel Pig Iron Sales Sales Sales 69.5mn 13.2mn 96 tonnes tonnes Large & Medium Enterprises Steel Product Steel Product Exports Imports Note: Data for 2018. Source: CISA, CEIC, NBS, World Steel Association CHINA IRON AND STEEL SECTOR 2019 Q1 5 An EMIS Insights Industry Report 01 EXECUTIVE SUMMARY CONTENTS Sector Overview China is the world’s largest producer of steel, accounting for 51% of the global steel production in 2018, according to the World Steel Association. The data from China Iron and Steel Association (CISA) shows that in 2018, China produced more than 1,106mn tonnes of steel products and 928mn tonnes of crude steel. The bulk of the sector’s output is sold on the domestic market with only 6.3% of the steel output exported in 2018. However, the scale of production in the sector made China a leading steel exporting country, with the volume of Chinese steel exports more than twice as large as that of India, the world’s second-largest exporter. Entry Modes China’s largest iron and steel companies are controlled by the state. There are foreign players that operate on the market by forming joint ventures with local companies. Until March 2015, foreign participation in the sector was limited to 50% of equity. Currently several large international steel companies have subsidiaries in China, among them Arcelor Mittal, POSCO, Nippon Steel and ThyssenKrupp. Driven by the government efforts to foster consolidation and competiveness in the sector, the M&A activity recorded a substantial increase in the last three years. To comply with the government’s restrictions on new capacity, new entrants need either to invest in old mills or revamp projects, or to build new plants while shutting down an equivalent amount of outdated capacity. Segment Opportunities Some of the major steel producers in China have voiced plans to expand the production of high-end steel products and specialised steel while cutting down on low-value steel production. It is expected that the demand for higher-value steel will be supported by the development of automotive and machine manufacturing. There are good opportunities in the segment concerned with high-end steel products used in high-speed rail, automotive and ocean maritime engineering projects, which China currently imports because it lacks the technology and know-how for their production. Government Policy The government actively supports the sector’s development, as it is considered one of the key pillars of the Chinese economy. In May 2016 the Ministry of Finance (MOF) implemented a plan to facilitate M&As, debt restructurings and bankruptcy rulings by adapting tax, accounting and land administration policies. In 2017, the MOF reduced export tariffs for some steel producers to stimulate exports. At the same time, steel producers have been subjected both to capacity reduction targets and to more stringent supervision of compliance with environmental protection requirements. Source: NBS, CEIC, World Steel Association, CISA CHINA IRON AND STEEL SECTOR 2019 Q1 6 An EMIS Insights Industry Report 01 EXECUTIVE SUMMARY CONTENTS Sector Snapshot China Iron and Steel PRODUCTION 928.3mn tonnes 1,106mn tonnes Crude Steel Steel Products EXPORTS 69.5mn tonnes Export Volume USD 60,894mn Share in World Crude Steel Exports Value Production: 51% SALES 1,090mn tonnes Steel Products Sales 140.2mn tonnes IMPORTS Crude Steel Sales 13.2mn tonnes Import Volume USD 16,442mn Import Value KEY PLAYERS SALES REVENUES* 1. Baoshan Iron and Steel: RMB 289.1bn 2. Hbis: RMB 109bn 3. Hunan Valin Steel: RMB 76.5bn 4. Maashan Iron and Steel: RMB 73.2bn 5. Shanxi Taigang Stainless Steel: RMB 67.8bn Note: Data for 2018. * Data for 2017. Source: NBS, CISA, GAC, CEIC, World Steel Association, Company Data CHINA IRON AND STEEL SECTOR 2019 Q1 7 An EMIS Insights Industry Report 01 EXECUTIVE SUMMARY CONTENTS Sector Snapshot China Iron & Steel In 2018, the Chinese iron and steel sector was supported by domestic investment in infrastructure and the strong performance of the construction sector, both maintaining relatively high growth rates. At the same time, the Chinese government continued to implement supply-side reforms in the sector aimed at reducing overcapacity, which forced many small or ineffective companies to exit the market. According to the new regulations announced in 2018, steel smelters were allowed to add new steel production capacity only if they eliminate certain amount of outdated capacity. During the winter season from November 2017 to March 2018, the scheduled production cuts in China’s steel sector were different for each mill depending on its emission levels, which stimulated companies to improve their efficiency. The robust demand for steel on the domestic market, combined with the tightening control over production, led to an increase in steel product prices. According to CISA, in 2018 the average value of China Steel Price Index (CSPI) reached 114.75, up by 6.5% y/y. The strong domestic demand resulted in a record-high y/y growth in crude steel output. In 2018, China produced 928.3mn tonnes of crude steel, representing a significant increase of 11.6% over 2017. At the same time, the output of steel products rose by 5.5% y/y, exceeding 1.1bn tonnes. The sales volume of steel products reached almost 1.1bn tonnes, marking an increase of 5.7% y/y. In 2018, China’s steel products self-sufficiency rate was 98% in 2018. About 58% of the total volume of steel products was sold by large and medium enterprises, which in 2018 sold 596.6mn tonnes of steel products, up by 1.9% y/y. In contrast with the stronger domestic demand for steel products, external demand decreased in 2018 for a third consecutive year. In 2018, the volume of steel product exports from China dropped by 8.1% y/y to 69.5mn tonnes, mainly as a result of the increased number of antidumping and countervailing investigations launched by the US, EU, India and other countries against Chinese steel products. In value terms, steel exports increased by 11.4% y/y to USD 60.9bn, which was attributable to the higher product prices. The import volume of steel products also marked a y/y decline in 2018, falling by 1% y/y to 13.2mn tonnes. In value terms, imports rose by 8.4% y/y to USD 16.4bn, following the increase in steel prices and the RMB depreciation against the USD. Stable demand for steel in 2018, along with the continuous government effort to reduce the overcapacity of China’s steel mills, resulted in falling inventories of iron and steel products. At the end of 2018, the value of finished steel product inventories in China witnessed a decline of 0.7% y/y, falling to RMB 229.8bn, compared with RMB 231.3bn as of end-2017. Source: NBS, GAC, CISA, CEIC, World Steel Association CHINA IRON AND STEEL SECTOR 2019 Q1 8 An EMIS Insights Industry Report 01 EXECUTIVE SUMMARY CONTENTS Driving Forces China is the largest developing country in the world and one of its fastest-growing economies. The iron and steel industry is among the mainstays of economic development, as it supplies sectors such as infrastructure, construction, automotive manufacture and machine-building. The development of the iron and steel sector will be shaped by the growth of China’s economy, the urbanisation of the country, the demand for higher value-added and specialised steel products, and consolidation in the sector. External The government has plans for further expansion of the country’s infrastructure, with a focus on roads and railways, which will create demand for the steel sector’s products. According to a projection by the United Nations, in 2030 some 68.7% of the population in China will live in urban areas, compared to 55.6% in 2015. This urbanisation will support the demand for buildings and intra-city traffic infrastructure.