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Source: Reuters

China steel assn says gloom over for local mills

Published: 22 Dec 2009 21:36:48 PST

BEIJING, Dec 23 - China's steel industry association lauded the achievements of the sector after a year spent berating its members for ignoring market signals and "blindly expanding capacity".

Qi Xiangdong, vice secretary general of the China Iron and Steel Association, said despite the global financial crisis, local steel mills had thrived against all expectations this year and will continue to prosper in 2010.

"China's stimulus plan has effectively warded off the impact of the world economic crisis on our steel sector," he said.

Qi's remarks, made at a conference on Tuesday, mark a change in outlook at the association, which has been consistently gloomy about the industry's prospects throughout the year.

"This time last year, the whole world was filled with pessimism, disappointment and fear, especially towards the steel industry," Qi admitted.

Even as late as November, CISA Vice Chairman Luo Bingsheng said despite a temporary recovery in prices, China's mills were still facing a calamitous collapse in demand over the winter.

But with demand and prices still intact and spot market prices expected to jump further in January, the association has now changed its tune.

Total output for 2009 is expected to hit 565 million tonnes, almost half the global total and far higher than the 400 million tonnes predicted at the beginning of the year, Qi said.

Led by the government's 4 trillion yuan stimulus package, soaring fixed asset investment has shielded the Chinese steel industry from the worst of the global downturn, he said.

"Consumption in the first eleven months of this year rose 109 million tonnes compared to the same period of last year. Some people ask where this 109 million tonnes has gone? I tell everybody to look at China's fixed asset investment this year."

Fixed asset investment rose 32.1 percent from January to November, easily accounting for the increase in domestic demand, he added.

STOCKPILES HEALTHY

China's steel inventories are estimated to stand at 11.5 million tonnes, 80 percent higher than last year, but Qi said earlier fears about China's bulging stockpiles were overblown and current levels were "reasonable".

"Everyone knows, at one period during last year's financial crisis everyone was so scared that they wanted to knock their own houses down, and they were cleaning out their stockpiles very quickly," Qi said.

Throughout 2009, CISA talked up the crisis facing China's steel mills as part of its efforts to wrest more control over the wayward sector. It accused local mills and traders of "ignoring market signals" and undermining its position during its ill-fated iron ore price negotiations with foreign miners.

CISA has now relinquished its role in contract price talks, with Shanghai's Baosteel back at the reins, but it continues to call for wholesale "restructuring" in the sector.

"Promoting mergers and restructuring and the elimination of outdated capacity are the major tasks facing the industry in 2010," Qi said.

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