China may buy up steel stocks, aid mills

(Agencies)
Updated: 2008-12-14 13:42

BEIJING/SHANGHAI - China may take further measures to revive its steel industry, the world's biggest, which could suffer an overall loss in the next half-year, the minister of Industry and Information Technology said on Friday.

China is considering raising export tax rebates and buying up some steel products for reserves in an attempt to help the country's steel mills, Li Yizhong told a news conference in Beijing on Friday.

"We suggest the export rebates on several high-end steel products could be raised by several percentage points, while we restrict exports of some low end energy-intensive products," Li said. China scrapped several steel export taxes from December.

Chinese officials have talked about buying commodities and resources, including base metals and crops, and offered subsidies to products for exports so as to support producers.

But Li's remarks were the first indication that it could also build up reserves of steel, which was already seen as a major beneficiary of China's 4 trillion yuan ($586 billion) stimulus package.

A worker walks past steel coils at a steel market in Nanjing, Jiangsu province December 10, 2008. China's exports of steel products in November fell 36 percent on the month to 2.95 million tonnes, due to weakened international demand as the global financial crisis hurt the real economy. [Agencies]

"It is a wise move for the government to support the steel industry via tax adjustements, otherwise it could take a longer period for steel mills to escape from a crisis," said Wang Jianhua, a senior researcher at industry portal Mysteel.

Analysts have also said building up stocks may support prices in the short term, but the policy could mean producers take longer to emerge from the current slump in demand, with a U-shaped recovery rather than a V-shaped bounce, since the government stocks may return to the market as prices recover.

Pricing power

Li said the government would adopt a preferential policy to encourage steel industry consolidation and seek more bargaining power in iron ore pricing by stopping steel mills from bidding each other up.

"China should have power over the iron ore price, as China ... is the largest iron ore importer of the world and accounts for half of the global traded volume. It was unfair previously," Li told the conference.

Chinese steel mills are pushing for a cut in long-term iron ore prices, the first since 2002, and are seeking changes to the traditional pricing system, as a looming global recession and tumbling steel prices have made their products unprofitable.

Li said China had purchased a huge amount of iron ore at high prices, of which 30 million tonnes were stored in the steel mills, 90 million tonnes in port warehouses, and 100 million tonnes were booked but had not been delivered.

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