It was reported that China’s surging demand for steel this year is expected to dominate the landscape of the steel industry as never before.

Already the world’s largest producer by far, the country is expected to rev up production by nearly 10%. But the higher output likely won’t exceed demand, pushing prices higher world-wide for steel, its raw materials and even coal.

Steelmakers, which idled dozens of mills and cut production as the global economy slowed, are now ramping up. Rio Tinto, which sells the most iron ore to China, is restarting production. Iron ore is a key ingredient in making steel. Arcelor Mittal, the world’s largest steel producer, is raising prices, as is China’s largest steelmaker Baosteel Group Corp.

China also is trying to unify a fragmented and sprawling domestic industry to present a strong, unified voice in price negotiations for sales and purchases of raw materials. The idea: Capitalize better on the country’s huge appetite for the materials that make everything from refrigerators to bridges.

China is expected to produce a record 600 million metric tons this year-about half the world’s total output. The next biggest producer, Japan, will make just one-sixth of what China is expected to produce. The U.S. was fourth in production, behind Russia, last year.

China’s continued resilience was the dim light in an otherwise dreary year for miners and steelmakers, marked by layoffs, mine closings and production and investment pullbacks as prices for commodities tumbled. And it looks to be the beacon going forward, along with India, to a lesser extent.

While other economies are strengthening, they don’t offer the same potential for growth as China, which makes penetrating that market critical. “Chinese steel production and demand is likely to continue its inexorable rise,” says Peter M. Fish, economist for MEPS International, a steel consulting firm.

That, in turn, is good news for all metals and minerals sellers.

Iron-ore spot prices, at about $110 a metric ton, have been climbing toward their highest level in more than a year. Coal prices for steel mills and electricity production have surged by more than 30% as the Chinese last year curbed production due to environmental concerns. Copper, aluminum and zinc prices also have risen.

“The recovery of all commodities has exceeded expectations,” says David Butler, analyst at J.P. Morgan Cazenove.

Australian ports are becoming congested again, with coal ships in line on the ocean, waiting to load and unload.

Robin Walker, a spokesman for Rio Tinto, the largest seller of iron ore to China and which sells a substantial amount of coal, says its economists are revising projections from August regarding Chinese demand. “The new update could show that growth is stronger,” he says.

BHP Billiton, the world’s largest miner, Rio Tinto, Australia’s Fortescue Metals Group Ltd. and Brazil’s Vale all are increasing production of iron ore, and in some cases coal, to meet the expected increased demand in China.

China’s Baosteel, an industry bellwether, told buyers last week that it would increase steel-sheet prices by 5% beginning in February, marking the third steel price increase in as many months.

“With January hikes now sticking well, we expect to see further price increases announced in China as well as Europe and the US,” says Michelle Applebaum, an analyst at steel research firm MARI in Chicago. “Chinese steel demand is profound, and rising raw-material costs are driving an inflationary spiral in the region as steelmakers and their customers clamor for material.”

Massive government stimulus and infrastructure plans-including for rails, roads and bridges in eastern China and for general construction and factory building in the western part of the country)-are fueling demand. Most of the steel production will be consumed internally, says the China Iron and Steel Association, the main steel trade group in the country.

China’s exports have dropped between 10% and 50%, depending on the product and country in the last year, which is welcome news for ArcelorMittal Chief Executive Lakshmi Mittal. Mr. Mittal says that last fall, China’s steelmakers remained fairly disciplined about keeping their steel from flooding foreign markets, which has helped steelmakers around the world raise prices.

The downside for ArcelorMittal and other steelmakers is that raw-material prices will likely rise as the companies compete with Chinese steel mills to secure the coal and iron ore needed to fuel and feed steel plants.

This week, Australia and China signed a $3 billion coal deal, the largest buyout by a Chinese firm in Australian mining history. The purchase of Australia’s Felix Resources Ltd. by Yanzhou Coal Mining Co. could open the door to more acquisitions this year.

It is reported that Shanxi Economics and Information Committee made a detailed plan to adjust and revitalize its steel industry, which is an important tax payer and job supplier in the province.

Local business newspaper reported the province cap pig iron and crude steel outputs at 45 million tonne and 40 million tonne respectively by 2011.

The Committee said that by 2008, Shanxi has about 78 above designated scale steelmakers, posting sales income of CNY 165.2 billion which have pig iron capacity of 54 million tonne output of 27.82mt; crude steel capacity of 40 million tonne, output of 23.45 million tonne and steel product capacity of 26 million tonne output of 19.76 million tonne.

Next step, the province will move on to expand stainless capacity and quicken development of the product varieties, on the basis of Taigang’s existing stainless capacity. An international stainless production base is targeted to be made. On the meantime, the province purposes to make merger, acquisition, elimination, and upgrading to forge steel bases in Changzhi, Yuncheng, Linfen and Lvliang. It already has big steel complex such as Haixin Steel, Zhongyang Steel, Zhongyu Steel and Changzhi Steel in these places.

By promoting Taigang to take over Antai Steel and other smaller mills, the plan hopes to raise its capacity up to 70% of the province’s total.

It is said that General Steel Holdings Inc. fell in New York trading after the Beijing-based steelmaker would raise about $25 million in a sale of shares and warrants.

General Steel dropped $1.22, or 21 percent, to $4.57 at 1:05 p.m. in New York Stock Exchange trading. The shares have risen 16 percent this year.

The company earlier today announced plans to sell 5.56 million shares and warrants to purchase as many as 2.78 million additional shares. The funds will be used for “general corporate purposes which may include working capital, capital expenditures, acquisitions of new businesses and investments.”

General Steel said in a statement April 8 it was starting discussions with a “potential target.” The company’s goal is to become a major steel producer in China, Amit Dayal, a New- York based analyst with Rodman & Renshaw Inc., said in an April interview.

Steel prices are anticipated to a big rise in the coming year – 2010, most iron ore producers are hiking their prices in China.

As an indicator for the steel market, the Baosteel Group Corporation (Baosteel) has raised January 2010 iron ore prices.

After the price adjustment, the main product prices of Baosteel have basically returned to their high level in 2009. The action was followed by Wuhan Iron and Steel (Group) Corp. (WISCO), Anshan Iron and Steel Group and other enterprises increasing their steel prices.

However, India witnessed another phenomenon this week when JSW Steel, India’s third largest maker of steel, has cut prices for flat products by Rs 500 a tonne in December.

Flat products are used in manufacture of automobiles and consumer goods such as refrigerators and washing machines. JSW has said it sees steel prices to be stable with an upward bias in 2010Baosteel said next year in terms of steel demand and the overall price, the situation will be greatly improved compared to this year, but the overcapacity issue will remain.

Next year’s domestic production capacity of the company may surpass 600 million tonnes. The company expects that next year China’s economic growth will rely more on domestic demand and growth in investment will be less than this year. Based on this premise, combined with reduction in vehicle purchasing tax and the possibility of continuing the home appliances to the countryside policy, the outlook for steel demand is optimistic.

Furthermore, as urbanization continues to advance, the demand for steel will be diversified, which will generate a new round of domestic steel demand. Relatively speaking, with the cooling down in investment in infrastructure, construction steel demand growth will slow in 2010.

It is reported that steel prices in China have dropped for six weeks running weighed by high stocks, but the decline was small thanks to the support from the recovering economy.

Market analysts hold that as the economy is growing steadily after a period of rapid revival. The steel industry will not go through sharp ups and downs, but is likely to enter a correction stage.

By last week, domestic steel prices had dipped for six straight weeks. However, the decline in the past three weeks has been narrowing, with rebar prices only edging down 10 yuan/ton a week on average.

Analysis of the industry information provider MySteel.com said that the building steel prices went down about 50 yuan/ton at most last week, with the decline smaller than the previous week.

However, a total of 13 rebar enterprises and 15 wire rod firms adjusted their prices last week, which indicates that the steel market has not yet stabilized.

Medium steel plate prices have been dropping but will post a smaller decline in the immediate future. The prices of hot-rolled and cold-rolled steel products will continue to correct.

According to a survey on the domestic steel mills and traders, more than a half held that the steel market would be dominated by correction in the coming period.

The Shanghai building steel market recorded an increase in stocks by 10 weeks running. A report by the China Iron and Steel Association said that in August, the steel stocks in the country’s major markets increased more than 15 percent over the previous month, and hit the second highest point of the year.

However, increasing steel demand from construction projects and restocking before the coming weeklong holiday have lent some support to the steel market.

Wang Jianhua, an analyst with MySteel, noted that the high stocks and a stable demand would exert a combined effect on the steel market.

Meanwhile, although steel prices have been falling persistently, steel plants are still unwilling to cut output as they can still make moderate profits at the current prices.

In the first 10 days of September, China’s crude steel output was estimated to be about 16.66 million tons. Daily output was about 1.66 million tons, down only 20,000 tons from last month.

It is reported that Shandong Iron and Steel Group, the world’s eighth largest steel maker, is suffering a setback in its proposed takeover bid for Rizhao Iron and Steel Group over differences in the terms of the deal.

Du Shuanghua, the founder of Rizhao Steel, one of China’s most profitable non-State steel mills, is employing delaying tactics against the purchase of a 67 percent stake in the company, according to people familiar with the situation.

In addition, Du was likely to consider moving to another province to restart his steel empire, according to insiders at the company.

The acquisition, which was expected to be pushed through as early as this week, was still under discussion and would probably be finalized next week or by the beginning of September, a senior executive at Rizhao Steel told China Daily.

Another source said the protracted talks are related to the financial terms of the deal. Shandong Steel’s acquisition is not thought to be all in cash. Instead, the company is expected to inject assets such as modern equipment in return for a controlling stake.

Du tried to protect his interests in the consolidation by handing up to 30 percent of Rizhao’s core assets to Kai Yuan Holdings, a Hong Kong-listed company in January.

Although Rizhao Steel is attempting to fight the acquisition, it has to weigh the repercussions of not cooperating with local authorities.

Officials from the local environment watchdog visited Rizhao Steel recently and asked the company to stop production using two boilers, on the grounds the facilities were not in accord with environmental standards, the source from Rizhao Steel said.

A senior official of neighboring Hebei province talked to Du recently, suggesting he should move back to Hebei, where he was born and started his business making steel tubes, the source said.

The consolidation is part of a plan by the Shandong provincial government to build a quality steel production base in Rizhao city with annual capacity of 20 million tons.

Rizhao and Shandong Iron and Steel signed a letter of intent for consolidation in early November. But the deal broke up after Du moved 30 percent of his stake to Kai Yuan Holdings.

“The Shandong provincial government aims to build a large steel group that can compete on the world stage,” said Yu Liangui, a steel analyst from Mysteel. “The steel industry wants to develop a steel industrial zone along the coastline. Rizhao has an advantage over Laiwu Steel and Jinan, in terms of regional position.

“If Shandong Steel has to establish a new factory in Rizhao in response to the government’s plan to build a quality steel production base in Rizhao, it will be in a disadvantageous position if it is facing competition from Rizhao Steel.”

China, as the world’s largest producer and consumer of steel production, is at a disadvantage in the annual international iron ore negotiations because of its limited presence in the industry.

The government wants the steel industry to consolidate, with large steel mills leading the exercise.

Du established Rizhao Steel in the city of Rizhao in 2003. Now the steel mill produces 8 million tons of crude steel annually and contributes one third of GDP to the city.

The Hurun report listed Du as China’s second-wealthiest person last year, with a 35-billion-yuan fortune.

When most Chinese State-owned steel mills suffered heavy losses, Rizhao reported a net profit of about 1.8 billion yuan in the first half of 2009, while Shandong Steel, which has three times the capacity of Rizhao, reported a loss of 1.3 billion yuan.

It is said from Roger Agnelli (Vale CEO) Wednesday that Brazil’s Vale, the world’s largest iron ore miner, isn’t in talks with Chinese steel mills on benchmark price of iron ore in 2009, but will continue to sell iron ore to China at prices concluded on interim contract.

Earlier, Rio Tinto reached an agreement with Japanese and Korean steel mills on a 33 percent price cut for iron ore and Vale also agreed on a 28 percent price cut for this year. Chinese steel enterprises rejected the above price cuts.

However, Vale is still respecting the interim price agreement it reached with Chinese steel mills, said Roger Agnelli.

Although steel prices in China dropped sharply in August, steel output is still on the rise. The domestic 77 main steel enterprises recorded an operating rate of 90.9 percent this month, compared with 87 percent in July.

According to the latest data from the China Iron and Steel Association, the country’s mid- and large-sized steel companies produced about 1.67 million tons of crude steel per day in the first ten days of August, refreshing the record again.

An analyst with Umetal noted that prices of imported iron ore reached the peak in early August, followed by a 15 percent fall responding to the drop of steel prices.

China’s major steel plants have recently raised their ex-factory prices for September, which foretells that they are still optimistic about the steel market in the following two months.

Market analysts note that China’s iron ore demand will continue rising along with the growing steel output.

It is reported that China’s largest steelmaker – Baosteel Group Corp., agreed to buy a 15 percent stake in Australian iron ore and coal company Aquila Resources Ltd. for A$286 million ($240 million) to secure supplies.

Baosteel will buy 43.95 million new Aquila shares at A$6.50 apiece, the Perth-based company said today in a statement to the Australian stock exchange. That’s 0.8 percent less than Aquila’s last traded price of A$6.55 on Aug. 25.

China, the world’s biggest buyer of iron ore, has invested in $56 billion of projects globally to try to reduce dependence on Vale SA, Rio Tinto Group and BHP Billiton Ltd., the world’s three biggest suppliers that control two-thirds of seaborne supply. Aquila has announced plans to develop a A$4.1 billion iron ore mine, port and rail project in Western Australia.

“This placement will provide the company with significantly greater capacity to accelerate the development of its key, high quality, steel raw materials asset portfolio,” Aquila said in the statement. Baosteel will also assist Aquila in sourcing “low-cost” financing for a number of the company’s projects including the West Pilbara project, the company said.

Aquila shares have jumped 98 percent this year amid a rebound in demand and prices of the steelmaking raw material. The company has a market value of A$1.6 billion.

The agreement was earlier reported by the Australian Financial Review. It is also said from Aquila that Baosteel also nominated Vice President Dai Zhihao to the board.

According to figures from the country’s industry information provider, CHINA’S steel prices went through a roller-coaster ride of gains and declines within 20 days, with the biggest tumble at 20 percent.

Steel prices plunged from this year’s record high early this month, a culmination of price increases since late last month when big steel plants raised prices.

Prices of deformed steel bars fell from their highest level of 5,000 yuan (US$735) per ton to 4,200 yuan, a decline of 16 percent, and steel wires saw the biggest tumble of 20 percent from 4,850 yuan per ton to 3,900 yuan as of last Wednesday, according to MySteel.com, the industry information provider.

Xu Xiangchun, an analyst at Mysteel, said the price hike by major steel plants was the last straw weighing down on the steel market and triggering the price slump.

Traders who sold stockpiles to cash in on earlier price rises also helped drive the prices lower, Yao Hongchao, president of a Henan steel trader, told the China Securities Journal.

Other traders suffered huge losses as prices slumped, while steel producers had significantly reduced stockpiles when prices were high, said Zhang Ping, an analyst with Umetal, another industry information provider.

The price change was a technical adjustment at first, but it could be compounded by a change in macro policies, such as a slight adjustment in bank credit, and a bearish run of the stock market that may impact investor confidence. The steel price adjustment may continue for some time, said Zhang, as stockpiles continued to rise on lower trade and supply.

Xu said there were signs that steel prices had plunged too much and that they may still drop.

Zhang forecast prices of deformed steel bars could stabilize at 3,700 yuan per ton before falling.