Somebody eats it, who? Anybody's guess, but there's fallout somewhere. Looks like the guys who can't pay the big bribes (*)die first starting in March? Do the sham banks support them?
Greater China
Mar 4, 2005
Cost of steel production soars
BEIJING - As Shanghai-based Baosteel, on behalf of Chinese steel makers, held negotiations with Hamersley of Australia and Companhia Vale do RioDoce (CVRD) of Brazil on late February and agreed on February 28 to raise ore prices 71.5% from those in 2005, the price hike that has gone beyond early market anticipation, is due to trigger off an all-round reshuffling of the Chinese iron and steel industry.
Anticipating sharp increase in production cost, large Chinese steel enterprises have set to increasing the ex-factory prices of products in the second quarter of this year. Small steel enterprises that do no have advantages in products may face the prospect of going out of business.
As China's steel output grows, its demand for iron ore has kept increasing. China imports about 40% of its iron ore consumption at present. For years, Shinitetsu of Japan has been leading Asia in its iron ore price negotiations with international iron ore giants.
The result is that the Japanese company reached agreements on February 22 with two Australian iron ore giants recently, with iron ore price rising 71.5% for 2005/2006, far exceeding the market expectation of 30-50%. Meanwhile, Pohang of South Korea also reached a 71.5% iron ore price rise agreement with the Australian company on February 23.
Most large Chinese steel enterprises are optimistic about the price hike of iron ore. They enjoy resources advantages on one hand and have advantages in products on the other. They may increase ex-factory prices of products to transfer the increase of production cost to users.
In fact, under the anticipation for sharp increase in production cost, large steel enterprises have already increased ex-factory prices of their products. Baosteel has increased ex-factory prices for HR products by 400 yuan (US$48.39) per ton, for CR products by over 500 yuan per ton, for hot-dipped and electro-zinc coated products by 400 yuan per tons and for electric steel by 400 yuan per ton in the second quarter of this year.
Experts estimate that as iron ore price rises 71.5%, prices of steel products on domestic market may increase around 200 yuan per ton. Price increase by large steel enterprises recently has already covered the market anticipation for iron ore price hike, and large steel enterprises may retain their high profitability. However, for some small steel plants with meager profit, it will be extremely difficult.
Meanwhile, starting from March 1, 2005, the Ministry of Commerce has introduced automatic import license management, which means even if small steel plants can afford the cost, they cannot find raw materials suppliers.
(*) Chinese corruption
globalpolicy.org
Hu Angang, one of China's most prominent economists, estimates that between 1995 and 2000 annual economic losses arising from corruption amounted to RMB1,000bn-1,300bn, the equivalent of 13-17 per cent of gross domestic product.
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