December 2009 Archives

China Steel Market Review 2009

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China’s steel industry suffered severely in 2009. Due to the global financial crisis, a majority of developed countries entered economic recession. The resulting decline in demand, especially for steel, produced deleterious effects which were not lost on China’s steel industry. However, a pickup in domestic demand has greatly helped local producers recover from the crisis and has promoted their further development.


China’s steel industry displayed five major trends in 2009:

I.Both the output and the consumption of crude steel are expected to exceed 565 million tonnes to reach a new high.

  1. The actual deduction in crude steel inventory will be more than 500 million tonnes. China's stimulus package has caused an acceleration in industrialisation and urbanisation, resulting in higher steel consumption due to a surge in construction activity.
  2. In November, the output of crude steel surpassed 1.57 million tons, an increase of 37.4% over the same period in 2008. In September, the average daily output was at its highest in 2009 at 1.69 million tonnes.

II.China’s steel exports have experienced setbacks, as the vibrancy of the domestic market has outpaced that abroad. Although a major net exporter of steel in previous years, China now imports quantities which rival the out-going totals.

  1. From January to November the net export of steel equaled 980,000 tonnes, a reduction of 98% y-o-y.
  2. It is predicted that annual imports of crude steel and billet will total 23.8 million tonnes, while exports will equate to around 25 million tonnes. This narrowed gap between imports and exports signifies that China is no longer predominantly export oriented in rudimentary steel.
  3. Excluding billet, China increasingly imported more steel than it exported from April to June, a trend which restarted again in November. It is expected that imports will continue to dominate through 2010.

III. The structure of demand has changed significantly, with a shift toward more toward long products.

  1. From January to November 2009, the output of rails, long products and narrow tape all increased by 24% y-o-y.
  2. The output of plate (narrow tape excluded) increased very little – only 8.4%.

IV. The overall steel market was relatively stable this year. Price movements fluctuated within reasonable levels.

  1. As a result of the global financial crisis, the international demand for steel decreased substantially causing a severe drop in the commodity’s price. The price of steel on the Chinese market was also affected.
  2. The decline in the price of steel accelerated after October 2008, dropping to 1994 price levels by the beginning of November 2008.
  3. From November 2008 to November 2009, the steel price moved within a narrow range, and has remained at a similar but slightly higher level in comparison to November last year.

V. The profitability of the steel industry dropped sharply this year. Small to medium sized steel mills who specialise in long products profited more than larger steel mills who specialise in plates.

  1. From January to October 2009, the total industrial output value for 70 medium to large sized steel mills decreased by 20% y-o-y – sales decreased by 20% y-o-y while profits decreased by 70% y-o-y.
  2. Medium to large sized steel mills ran deficits for seven months, from October 2008 to April 2009. The deficits switched to profits only in May of this year, and until recently, these profits have remained small.

Beyond language barriers, the negative perception of Chinese products’ quality often hinders their ability to enter the Russian market. Although a prospective deal between a Russian client and a Chinese supplier may make it to the final stages, even to a point just before the contract is signed, reservations on the Russian side may lead to a failed or delayed transaction. All may be ameliorated with a single certification – the GOST R.

GOST R Certification

The GOST R is not an advanced certification, hence for certain industries allows fast access to the Russian market. It is issued by the Federal Agency of the Russian Federation on Technical Regulating and Metrology to ensure that production activities, goods and services conform to Russia’s national standards.

There are two types of GOST R: the Single Shipment Certificate and the Serial Production Certificate. The Consignment Certificate of Conformity for Single Shipments is a trade document valid for one consignment only, i.e. for a certain quantity and product type. It can be issued only if the foreign manufacturer is able to prove that there is a pre-existing agreement with a Russian customer/importer by means of a contract or an invoice.

In contrast, the Serial Production Certificate of Conformity is a trade document whose validity can vary from one to three years, and is issued specifically to manufacturers. In this case, there is no need for the manufacturer to provide documentation from a customer/importer in Russia. This certification enables the foreign suppliers to send an unlimited quantity of goods during the certificate’s period of validity. To obtain the Serial Production license, Russian experts must first inspect the manufacturer’s facilities and test product samples.

Of these two Certificates of Conformity, there are both voluntary and mandatory types whose colours are blue and yellow, respectively.

The GOST R certification system concerns the majority of products sold and/or used in Russia, such as foodstuffs, textiles, cosmetics and toys; mechanical and electrical goods; and equipment for such industries as food, chemical, oil and gas, and construction as well as others.

Regional Applications

The benefits of GOST R certification are apparent in CIS countries. It is officially required and acknowledged in Russia and Belarus. And although not officially required in Kazakhstan, Azerbaijan, Moldova, Lithuania, Latvia, Estonia or the Ukraine – in the Ukraine, UkrSEPRO is the officially required standard – the possession of GOST R certification is widely recognised, and assists in the promotional activities of one's product.

In addition to GOST R certification, RTN certification is necessary for exporting potentially dangerous products to Russia. This applies to manufacturers of such items as lifting equipment, heat exchangers, hot water boilers, pressure equipment, and compressors.


Type GOST R Certificate UkrSEPRO Certificate GOST K Certificate
Certifying Body GOSSTANDARD Derzhspozhyvstandard KAZMEMST
Certificate Types

Mandatory Certificate of Conformity (yellow)

Voluntary Certificate of Conformity (blue)

Mandatory Certificate of Conformity

Voluntary Certificate of Conformity

Mandatory Certificate of Conformity (blue)

Voluntary Certificate of Conformity (pink)

Validity

Single Shipment Certificate

1 Year Certificate

3 Year Certificate

Single Shipment Certificate

1 Year Certificate

2 Year Certificate

5 Year Certificate

Single Shipment Certificate

1 Year Certificate

3 Year Certificate


Another point to mention is that Russia’s individual industries, and even individual leading enterprises, may have their own standards. For example, some steel end-users only buy boiler tube with ОАО "CNIITMASH" certification, and oil major Rosneft has its own qualification standards for providers of its equipment.

Once the language barrier is overcome, obtaining GOST R certification is the next step toward enhancing a product’s competitiveness in Russia and the CIS. It is an indispensable move for making the quality of one’s product recognisable to these countries to ensure that, next time, the deal runs smoothly.

The 30-second advertisement below promoting Made in China products has been airing on CNN since late November 2009. The advertisement was produced under the auspices of four Chinese industrial chambers of commerce (China Advertising Association of Commerce; China Chamber of Commerce for Import and Export of Machinery and Electronic Products; China Chamber of Commerce for Import and Export of Light Industrial Products and Arts/Crafts; and China Chamber of Commerce for Import and Export of Textiles) and supported by the Ministry of Commerce of China.

This advertisement represents China’s first ever global branding campaign to enhance the image of the Made in China brand. The theme of the ad is Made in China, Made With the World. It attempts to highlight how Chinese and overseas firms work together to produce high-quality goods. Appearing in the ad are products used in daily life, including running shoes made with US sports technology, an iPod player with software from Silicon Valley, a French-designed fashion label and a European-designed refrigerator - all sporting the Made in China label. As such the ad is a clear attempt to link Made in China with Designed in the West and to illustrate China's capability and potential to manufacture quality products.

Before this advertisement, the global branding image of Made-in-China products was derived from individual companies such as Haier, Tsingtao, Huawei, or from Chinese companies investing capital overseas, such as Lenovo. The new theme of Made in China, made with the world, however, points to a whole new trend in the development of the Made-in-China brand. Yet this is only the start of the global reconfiguration of the Made-in-China brand. What do you think of the ad? Have a look and let us know in the comments section below. 



It is said that one does not only buy a product, but the supply chains that come with it. For those sourcing from China, this is especially true. The rapid development of China has taken place unevenly within its territory. Various levels of infrastructure development, different legal structures – particularly within special economic zones – and diverse geographic features give some cities a logistical edge over others. A recent paper[1] in the Journal of Social Science and Management attempts to make sense of it all. The findings of this study are presented to enable supply chain professionals to assess their own logistical standing.

Logistics Rankings list2.JPG

The authors evaluate a city’s ability to move goods based on ten variables, which include local gross domestic product, the number of foreign funded enterprises, freight traffic (by weight), investment in fixed assets, railway and highway density, and possession of civil motor vehicles. Scores are then generated from the relative dearth or abundance of these features to compare the logistical situation of 30  Chinese cities.

The results are unsurprising. The top of the list is dominated with cities along the east coast. Shanghai is number one in all but two categories – it is behind Beijing and Tianjin in railway development and ranks 21st in regards to the possession of motor vehicles. Chongqing may be considered the most prominent city for logistics in western China. It is 7th overall, number two in freight traffic, and is in the top five in four of the other factors. In general, cities in the west were overshadowed by their eastern counterparts: Xining (in Qinghai province) lagged behind the other 29 cities in all but one category - freight traffic.

Keep in mind that this study provides only a historic snapshot of a dynamic picture, given that 2005 data was used. However, the overall situation of China's logistical capabilities remains clear; the north has an edge in rail capacity, the south by way of road, but above all it is the eastern cities which are best endowed to handle large flows of goods.

CN logistics rankings map2.JPG


[1] Jiang, C., and D. Chen. "Research on Urban Logistics Infrastructure: An Empirical Study of China." Journal of Service Science and Management 2.2 (2009): 80-91. ProQuest Computing, ProQuest. Web. 21 Dec. 2009.

Most of the world’s leaders are saying that the global recession is over. But does this correspond to the data? A few leading indicators, both conventional and unconventional, will be examined to determine the outlook of the global economy.

OECD Leading Economic Indicators

The Organisation for Economic Co-operation and Development (OECD) releases its Composite Leading Indicators (CLI) on a monthly basis. Each country’s index is comprised of different statistics. For example, China’s includes items such as the production of chemical fertilizer and the tonnage of cargo handled at ports, while for the United States the interest rate spread and consumer sentiment are measured. Periods of expanding or diminishing economic activity fluctuate around the value of 100, deemed to be the long term economic trend. Movements in the CLI generally precede similar movements in the business cycle.

OECD graph3.JPG

According to the OECD’s leading indicators there is an overwhelming trend of economic recovery. Countries such as China and India have even eclipsed the 100 mark, suggesting that they are back on track in terms of more long term trends. From the OECD data, it seems that the worst days of the recession have indeed passed.

Baltic Dry Index

The Baltic Dry Index is another way to predict future economic growth. It is published by the Baltic Exchange in London and gives an overview of the marine shipping price for raw materials worldwide. This is a useful indicator because the availability of cargo ships is relatively stable, whereas the need for international shipments in dry goods—things like coal, metals, and grains—varies considerably depending on economic activity. An increase in shipping activity means an increase in future output.

This index collapsed in late 2008, but has since recovered. It is now listed at over four times its previous value in January 2009. This largely agrees with the OECD leading indicators in reflecting a wide-ranging recovery for the world economy. The Baltic Dry Index can be tracked on Bloomberg.

Skyscraper Index

This one is less conventional. The Skyscraper Index is a measure based more on casual observation than statistical analysis. The argument behind it is that the construction of record-breaking towers is often initiated just before an economic crisis. Ground was broken on the Singer Building and Metropolitan Life Building before the panic of 1907; the Empire State Building’s construction in New York corresponded with the Great Depression; the Sears Tower in Chicago preceded the downturn of the 1970s; just before the Asian financial crisis there were the Petronas Twin Towers in Malaysia; and more recently, there was the Burj Dubai before its city’s debt problems.

If the soothsaying behind this index is correct, it doesn’t bode well for China. The country will see new towers such as the Shanghai Center, the 117 Tower in Tianjin, the Ping An Insurance skyscraper in Shenzhen, and the China World Trade Center Tower 3 in Beijing within the next few years. These projects come at a time when some have warned of the possibility of asset bubbles in China. A slowdown in this rapidly growing economy would have adverse effects on the rest of the world.

For the sake of optimism thus, following the conventional indices is recommended.

RMB.jpg

US president Barack Obama’s November visit to China highlighted China-US trade relations and the importance of these two major economies in leading the world out of crisis. The US president and other world leaders have charged that China is keeping its yuan currency artificially weak in order to benefit domestic exporters. An appreciating yuan, these foreign leaders feel, would bring greater balance to trade and lead the world out of the current crisis. But is this really the case? Perhaps history and a few economists can shed more light on this issue.

Those in favor of a dearer yuan include the IMF Managing Director, Dominique Strauss-Kahn. In a recent speech he emphasised the need for the global economy to shift away from the old paradigm based upon US consumption, fueled by easy credit and cheap goods from export-dominant countries. Trade surplus countries such as China must fill the consumption void left in the absence of the US. A stronger yuan is needed to increase Chinese buyers’ purchasing power abroad and to stimulate a depressed world economy.

Nobel Prize winning economist Paul Krugman is even more strident in his criticism of China’s monetary policy. He contends that China has engaged in a 'beggar-thy-neighbor devaluation' and that the nation is “siphoning much needed demand away from the rest of the world into the pockets of artificially competitive Chinese consumers” in a time of crisis. He warns that large trade imbalances, such as that between China and the US, could lead to an eventual failure in trade altogether. An appreciated yuan, he insists, is necessary to heal the world’s economic ills.

Not all agree with this sentiment. Justin Yifu Lin, chief economist at the World Bank, warns that appreciating the yuan will not help to improve global trade balances and would spoil what appears to be the beginning of economic recovery. Goods would become more expensive in the US, adversely affecting the already beleaguered American consumer. The trade deficit between the two countries would not diminish significantly because manufactured goods shipped from China are not produced domestically in the US. Mr. Lin advises instead that a growing China and a reformed US financial sector are the keys to global recovery.

Historic precedence also challenges the assertions of the likes of Krugman and Strauss-Kahn. In the 1980s the world’s major central banks worked to appreciate the Japanese yen by around 50% to the USD. The unexpected result was that the US trade deficit with Japan actually increased. The first significant decrease did not occur until 1990, five years after the central banks’ action and three years after the currency revaluation.

There is no simple short-term solution to trade imbalances. In the end, China’s monetary policy is set by China’s leaders who appear content with the yuan at around 6.82 to the USD. The result: China’s GDP once again surpassed the 8% growth rate with indications that the rest of the world is regaining its economic footing. It could be a lot worse. Debates on China's monetary policy will continue, but for now the yuan is staying put, for better or worse.

Venue:         INTEX Shanghai
Date:           9-11 December 2009
Organisers:  Chinese Society of Particuology
                   NürnbergMesse China Co. Ltd.
                   Worldwide Exhibitions Service Co. Ltd.
Tel:             +86 (0)21 5228 4010

Briefing:
As one of the largest and specialized international fair in the field of powder, granule and bulk solids technology in China, IPB 2009 is intended to establish a bridge for enterprises to/from China to promote fair exchange and fair competition within the industry. The event will display the latest products and technology such as basic mechanical processing technologies, plant engineering and processing components, particle analysis and characterization, nano particle technologies, measurement and control, safety and environmental technologies, and more.

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