It is reported by the state government that Anshan Iron & Steel Group, which controls China’s second-largest listed steelmaker, will study building steel plants and iron ore processors in Western Australia.

As we all know that Western Australia is about four times the size of France, produces one-third of the world’s traded iron ore; while China is the world’s biggest consumer of the steelmaking material.

The Chinese company signed a memorandum valid until December 2010 to conduct a study into building “steel plants and rolling mills,” according to a statement from Western Australian Premier Colin Barnett. It’s also “shown interest in iron ore processing” at Mt. Karara, the statement said.

Anshan Steel is planning an iron ore project at Mt Karara with Gindalbie Metals Ltd. to secure supplies of the steelmaking ingredient to feed expanding capacity. Iron ore producers in Australia have sold shares and brought in Chinese investors as they sought funding amid the global credit crunch.

Anshan Steel is also “keen” to play a role in the Oakajee port development, the statement said. Murchison Metals Ltd. and Mitsubishi Corp. are building a A$4 billion ($3.3 billion) port and rail project at Oakajee, which will open up exports of iron ore from the region in Australia’s mid-west.

Anshan and Gindalbie agreed in September 2007 to invest as much as A$1.8 billion to develop the Karara project.

It is said yesterday by a key official with the steel industry lobby that China would rather give up on annual negotiations for iron ore pricing contracts than accept the 33-percent cut proposal. The official also confirmed that the latest round of talks would see some progress within the next 10 days.

“CISA has put the foot down and will not compromise on its stance. You will see the result in around 10 days,” Li Xiaowei, vice-chairman of the China Iron and Steel Association (CISA) and chairman of the State-owned Hunan Valin Iron & Steel Group, said.

“We will ask for a better rate, otherwise we would rather give up on the annual negotiations for iron ore pricing,” he told China Daily at an Australia-China investment forum.

“Supply and demand rely on each other like teeth and lips. Those who only chase monopoly and windfalls will eventually lose more,” Dow Jones also quoted Li as telling reporters on the sidelines of the forum.

China, as the world’s largest iron ore buyer, needed 450 million tons of iron ore annually, and should have the right to decide its price, he said.

Chinese media reported earlier that some major steel mills, including Baosteel and Hebei Iron and Steel Group, had agreed with Rio Tinto and BHP Billiton on a 33-percent cut in iron ore prices.

Li Qingyu, general manager of Baosteel Resources Co, said he was not informed about the deal, adding iron ore supply exceeded current demand.

CISA rejected a 33-percent price reduction that Japanese and South Korean mills agreed to in May, and held out for a 40-percent cut.

The negotiations, which missed their June 30 deadline, became more uncertain after four employees of Rio Tinto were detained on charges of espionage just a few weeks earlier.
Steel analysts too believed CISA’s stance was not pragmatic.

“After Japanese and Korean mills, even some Chinese steel mills have accepted the 33-percent discount. China’s bargaining chips are falling,” said Yan Song, a steel industry investment manager at Hao Capital.

He said China’s steel industry was disadvantaged in annual iron ore negotiations due its low industry concentration.

The output of the top 10 Chinese steel mills stood at only 30 percent of its total steel output while the three global giant miners accounted for 70 percent of global iron ore trading.

Since the prices of iron ore and shipment are fluctuating, and are most likely to go up, steel mills will see fluctuating profits. If China gives up on the negotiations and turns to the spot market, the profits of steel mills may fall. According to Metal Bulletin prices, the iron ore spot price rose 4.6 percent to $91 a ton last week, the highest since October last year.

Hebei Iron & Steel Group (Hebei Steel) has overtaken industry “dragon head” Baosteel in terms of output, giving it the clout to share the platform with the Shanghai producer in price setting and negotiations with overseas ore suppliers, after a major restructuring late last year.

Figures from the Ministry of Industry and Information Technology showed that Hebei Steel has displaced Baosteel from the top slot in May with a total output of 3.15 million metric tons. Baosteel produced 3.13 million tons of steel products that month.

The latest count, of course, is unlikely to have any material impact on the ongoing Baosteel-led price negotiations with foreign ore suppliers. But industry analysts said the rise of Hebei Steel is significant to the future development of the industry, especially when the company is embarking on the second stage of restructuring by grouping together its three listed subsidiaries and two privately held units to form a mega steel conglomerate with a public listing.

As earlier reported, the proposed merger calls for the acquisition by the principal listed subsidiary, Tangshan Iron and Steel, of the assets of the other listed subsidiaries, Handan Iron and Steel and Chengde Xinxin Vanadium and Titanium Co. When the transaction is complete, Tangshan will be the sole remaining listed entity of Hebei Iron.

In the second stage of the restructuring, Hebei Steel said it would inject the quality assets of its unlisted subsidiaries, Wuyang Iron and Steel and Xuanhua Iron and Steel, into the remaining listed arm.

The proposed transaction, if it goes through, will catapult Tangshan Steel into the forefront of steel producers with an estimated annual output in excess of 30 million tons, challenging Baosteel for the top spot among the nation’s steel producers.

As for now, Baosteel still remains the king of the road.

“I don’t think by producing a little more steel Hebei Steel can challenge Baosteel’s dominant position in the steel sector,” said Nie Xiuxin, a senior industry analyst with Ping An Securities.

As China’s barometer of the steel industry, Baosteel boasts not only of giant output, but also enjoys advantages in research and development, metallurgical technology, and production innovation. All these factors should also be taken into consideration when valuing a steel company’s industrial status, and as such Baosteel’s position is insurmountable in the short term, said Nie.

The overall steel turnover of China takes up nearly half of the global total. However, China’s say in the international steel industry is still very limited. “That is quite similar to the situation of Hebei Steel and Baosteel,” she added.

Wang Zhaohua, analyst, Guodu Securities, said Baosteel’s position is hard to replace. “At present, everyone in the steel industry follows Baosteel in terms of management, technical development and price adjustment,” he said.

According to Wang, around 30 to 40 percent of Hebei Steel’s products are low-end construction steels. In contrast, Baosteel concentrates more on high-end steel sheets, used in automobiles and electronic home appliances.

Baosteel targets to become the world’s second largest steel producer by 2012, with a projected annual production of 80 million tons.

It is reported that many Chinese listing metals firms have released their half-year performance guidance reports in succession since July, and almost all forecasted losses for the first half year but said the metals sector started to show signs of recovery in the second quarter.

Among the companies having issued their guidance, Yunnan Copper Co., Yunnan Aluminum Co., Yunnan Tin Co., Sino-platinum Metals Co. estimated losses of 120 million yuan, 110-120 million yuan, 40 million yuan, 3.3 million yuan, respectively, in the first half year, while Henan Zhongfu Industry Co. (600595.SH) predicted a year-on-year drop of 73.84 percent in its net profits.

According to their reports, the nonferrous metals sector’s losses were mainly due to the sharp fall of prices and demand of metallic products on the international market amid the financial crisis.

Despite the expected losses for the metals sector on the whole, quite a few companies had achieved profits in the second quarter, but their Q2 profits could not make up the losses in the first quarter.

Yunnan Copper Co. said that it made profits in the second quarter as prices of copper products were on the rise in that period. Yunnan Aluminum Co. also made breakeven in April-June period.

Yunnan Tin Co. noted that its selling prices and sales volume in the second quarter gained marginally from the first quarter and its performance was on the mend.

Thanks to the government’s supportive policy, aluminum demand from power grid construction, railway and transportation sectors has been increasing since February, according to Henan Zhongfu Industry Co., which performance picked up month on month in the first half year.

It is reported from China Metallurgical News that Qinghai Province, which located in Northwest China, plans to expand its local steel industry in 3 years.

In order to fulfill the targets during 2009 to 2011, the province projects to improve the production of iron ore fines by enhancing mine constructions

1. To specialize in specialty steel
2. To give temperate development of common steel
3. To gear up the building of 1 million tonnes per year stainless steel production base
4. To promote the regulations in steel industry development.

Among the five targets, Qinghai will give priorities:

A. To extent the fines capacity to over 3 million tonnes per year to ensure the need of local steel production

B. To the R&D of high value-added specialty steels like bearing steel, gear steel, tool & die steel and heat-resisting, cold-resisting, corrosion-resistant steels.

C. To the 1 million tonnes per year reduced iron project or the integration of 2 million tonnes per year steel project in Geermu, aiming to produce construction steels and other products like CR sheet, seamless pipes and cold forming section steels.

D. To the building of 1 million tonnes per year stainless steel and the development of local nickel mines and processing companies.

Besides, according to local and central policies local governments will strictly control the ferroalloy production capacity and speed up the elimination of 12500 KVA and below submerged arc furnaces to promote the industrial concentration.