Some of China's largest steel firms expect to raise output in 2006, but their executives said this week that consolidation and closures would still slow national output growth from last year's blistering pace.
The industry would focus on "self-sufficiency" and developing those steel products that China currently lacks, said a senior executive with Baosteel Group, China's largest steel maker.
"I personally think China's steel output will stay about the same, at 350 million tonnes," Ai Baojun, chief executive officer of Baoshan Iron and Steel Co Ltd, said in an interview on Tuesday.
China's steel production rose by nearly 25 percent last year, to 349 million tonnes, pressuring domestic prices even as raw materials prices rose. Baosteel is currently representing the Chinese industry in annual term price negotiations for iron ore, the main raw material for steel production.
"We resolutely will not agree to a price rise," Ai said, reiterating the Chinese industry's stance that term iron ore prices should fall in the year starting April 1.
Iron ore suppliers are seeking a increase, based on their projections that Chinese demand will rise. Traditionally, Japanese mills, the largest term iron ore consumers, take the lead in talks, but Chinese mills have sought a larger role as their industry grows.
Baosteel Group produced 22.7 million tonnes of steel last year. Expansions currently underway will bring its capacity to 30 million tonnes by early 2008, Ai said.
"Our capacity is now 25 million tonnes, and I expect output to be at basically that level this year," Ai said.
A hostile takeover bid by Mittal Steel, the world's largest steel maker, for Arcelor SA, the second largest, could shake up the steel industry and help push Chinese firms to consolidate, Ai said.
"I think the pace of mergers in China could speed up this year," Ai said.
Arcelor is a partner with Baosteel in an automotive steel project in Shanghai.
"If the Mittal bid for Arcelor goes through, I hope it doesn't affect our current agreements. I believe the two companies' merger should not affect the relationship between the current partners," Ai said.
He wouldn't confirm that his company was in talks with Bayi Iron and Steel Co, in the far-flung western region of Xinjiang, as other industry executives have said.
Liu Jie, the chairman of Hong Kong-listed Angang New Steel Co Ltd said his company would raise production 26 percent to 15 million tonnes in 2006, increasing to 16 million tonnes in 2007.
The merged giant Anben Iron & Steel Group - a consolidation of Angang's parent with Benxi Iron & Steel Group - had some 93 billion yuan ($11.58 billion) of revenue in 2005, Liu said.
Liu expected Chinese steel prices to rise steadily in 2006, after falling steadily in the second half of 2005. He declined to estimate national output growth, saying that higher prices could encourage mills to ramp up production.
China's sixth-largest steel maker, Shougang Group, will increase output 5 percent this year.
Its chairman, Zhu Jimin, estimated total national output would grow 8 percent - short of a 10 percent estimate by the China Iron and Steel Association.
Hunan Valin Iron and Steel Group general manager Li Jianguo said his company planned to spend $621 million over five years on upgrading its products, although its output volume wouldn't change. Mittal Steel, the world's largest steel maker, holds a minority share in Valin's listed arm.
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