2012-02-10

Chinese steel prices fall again; foreign investor cash wanted


The Chinese steel industry is hurting and prices are headed lower. Now, the government and industry are more welcoming of foreign investors. Fear of Foreigners Eases in China Steel Sector
The pushing by foreign interests and the government's push backs continued until 2009, as the steel industry started feeling the impact of the global financial crisis. In that year, the State Council started work on a Steel Industry Restructuring and Revitalization Plan that included a proposal to re-examine foreign investment for Chinese steel companies. But the measure failed for lack of consensus.

"Government departments in opposition at the time said that the economic crisis was a good opportunity for consolidation, which should be done by Chinese state-owned enterprises, not foreign companies," said a government source involved in drafting the plan.

The plan's opponents saw no reason to adjust foreign ownership restrictions, which were initially intended to help the domestic steel industry recuperate from a downturn it struggled through in the early 2000s.

Yet statistics from the China Iron and Steel Association show that the industry's profitability has actually declined since the global crisis even as output soared. Nationwide production capacity has increased to 700 million tons in 2011from 200 million tons in 2003, but the average profit margin fell to 2.55 percent in 2011 from 8.11 percent in 2004.

Meanwhile, steelworks have continued to expand, sparking concern of excess capacity in coming years and fierce competition that damages more than helps the sector.

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