Most steel Chinese mills will make losses or struggle to break even in the next five to 10 years, according to experts. Driven by nationwide infrastructure construction, the capacity of China’s steel industry surged by 400 million tons from 2004 to 2012. But as the nation’s economy enters a steady growth stage, there are between 200 and 300 million tons of excess capacity at the moment, said Xu Kuangdi, President of the Chinese Society for Metals. “Some observers said it is winter in the Chinese steel industry, but I don’t see that spring will follow,” said Xu at the Baosteel biennial academic conference, suggesting steel mills may have to suffer a longer period of hardship than expected. “An industry reshuffle will take place and the consolidation period for the steel industry may last as long as 10 years,” he said. According to Xu, China produced 191.75 million tons of steel in the first quarter, with a record high growth rate of 9.1% year-on-year. Xu Lejiang, Chairman of Baosteel Group Corp, said the steel growth rate will slow down in the following two quarters. He said China’s steel production grew 20% year-on-year from 2000 to 2006 but this declined to about 10% from 2006 to 2011, then dropped below 5% afterwards. Some 716.54 million tons of crude steel were produced in 2012, a year-on-year growth of 3.1%, the National Bureau of Statistics (NBS) said. Xu Kuangdi suggested that steelmakers streamline production capacity through mergers and restructurings, optimize production structure, pay attention to management, and improve customer service. Baoshan Iron and Steel Co (Baosteel) launched an e-commerce platform on May 31 as part of efforts to diversify its business structure and to provide an all-round service, including steel trades, settlements, storage and logistics to steel enterprises, traders and downstream clients. Major listed steelmakers posted worse than expected earnings in the first quarter due to surpluses, but Baosteel remained upbeat, with its net profit surging 33.3% to CNY1.6 billion. The country’s 80 major steel companies posted CNY1.58 billion in profits in 2012, tumbling 98.2% year-on-year, according to data from the Ministry of Industry and Information Technology (MIIT). Their sales margin was a mere 0.04% in 2012, down from 8% in 2004, the China Daily reports.

Aluminum Corp of China (Chalco), China’s top producer of aluminum, joined other companies in cutting capacity to help trim a market surplus after it suffered losses due to weak prices. The company said it would temporarily close 380,000 tons of annual capacity due to market conditions. The shutdown represents 9% of its annual output of primary aluminum products of 4.22 million tons last year. In March, Chalco posted a worse than expected net annual loss of CNY8.2 billion, hit by low aluminum prices and rising costs. U.S. producer Alcoa and Russia’s Rusal, the world’s largest producer of aluminum, are also cutting capacity. Analyst Leon Westgate at Standard Bank in London said: “The key remains how temporary the cuts may be, and to what extent new production capacity in China steps in to fill any gap.” The global market surplus is expected to be 782,250 tons this year, and will widen further to 896,000 tons next year, according to analysts polled by Reuters in April. The surplus has weighed on prices, sending benchmark three-month aluminum on the London Metal Exchange (LME) down about 30% since touching a high of USD2,803 per ton in May 2011. In recent weeks prices have rebounded.

• The Shanghai Iron and Steel Trade Center was launched with the aim of using e-commerce to enhance the Chinese steel industry’s global influence, especially at a time of overcapacity and tiny margins. The electronic trading platform, initially funded by Baosteel Group and the Baoshan district government, will also provide supply chain financing, warehousing and logistics, as well as consulting services. The idea is to provide a one-stop service for companies along the steel supply chain. The center also hopes to create a “Shanghai price” and “Shanghai standard” for the industry.
• China’s steel industry made CNY153 million in profits in April, which marked a fourth monthly decline, according to the China Iron and Steel Association (CISA). There was a 2.3% rise in the number of steel makers reporting a loss, or 39.5% in total. Steel sales in the first quarter increased by 0.8% year-on-year to CNY1.2 trillion, delivering a profit of CNY2.7 billion, 2.7 times the profit for the same period in 2012. Pig iron output stood at 239 million tons in April, up 7% year-on-year.
• The Shanghai Futures Exchange will introduce after-hours trading for its gold and silver contracts, starting from July 5. Night trading will commence at 9 pm from Monday to Friday and end at 2:30 am the next day. Price volatility in precious metals on global markets in recent months has exposed Chinese investors on the local exchange to risks. After-hours trading here would enable Chinese investors to close positions late in the day if prices swing sharply when Western markets open. The Shanghai exchange would lower margin requirements, or the minimum amount of cash an investor must keep as deposit, for gold and silver contracts to 4% from 7%, in a bid to boost trading volumes.

China’s state-owned Anshan Iron and Steel Group Corp has agreed to take a majority stake in the Karara iron ore project in Western Australia, shoring up joint-venture partner Gindalbie Metals after setbacks at the project. The deal will eliminate the need for Gindalbie to raise equity and allow it to hold on to AUD35 million in cash at a time when mining companies are struggling to retain capital. The Karara project has experienced delays in the ramp-up of mining activity and seen shipment rates fall below internal forecasts. “The advantage of this arrangement is that it avoids the need for us to call on shareholders or the market for more funding for Karara’s ramp-up and effectively marks the beginning of a new chapter for Gindalbie,” Gindalbie Managing Director Tim Netscher said in a statement. Under the agreement, Ansteel will receive an option to lift its stake in the project’s 50-50 operator, Karara Mining, to as much as 52.16%, after providing bridging loans over the next 12 months until new longer-term loans can be secured with the China Development Bank (CDB) or other lenders, Gindalbie said. Gindalbie’s stake would fall to 47.84%. The deal requires approvals from foreign investment regulators in Australia and China. Australian iron ore mining firms Rio Tinto, Fortescue Metals Group and Atlas Iron each have Chinese partners, though none own controlling stakes. Gindalbie said that the delays at the project were now behind it and that it was on track to reach maximum production rates of 8 million tons a year in July. Magnetite ore predominately found at the Karara mine costs more to process than other ores, but once transformed into a useable form for steelmaking, it contains larger amounts of pure iron, enabling the material to be sold at a higher price. Gindalbie expects its ore to fetch a 15% to 20% premium over benchmark 62%-grade iron ore. Ansteel holds the rights to purchase the full output from the Karara project, which also includes 2 million tons a year of ore that requires no processing before shipping. So far, Ansteel has not exercised its rights to all the iron ore produced at the Karara project, allowing material to be sold to other buyers, the South China Morning Post reports.

China plans to scrap its decade-old iron ore import licensing system this year, a move that may further lift imports in a market that takes two-thirds of the world’s international iron ore trade. The move could cut costs for domestic steel mills by eliminating licensed middlemen charging commissions for imports. It could also mark the end of years of efforts by China to strictly regulate the trade due to worries over its growing dependence on imports and in an effort to wrest pricing power away from big miners such as Rio Tinto and Vale. “China will open up its iron ore trade from the second half of the year,” a source who was not authorized to speak to the media said. China imported a record 743 million tons of iron ore in 2012, up 8% from a year earlier. Iron ore traders will need only the same routine licenses that are issued to other importers and will no longer need approval by government-backed industry bodies such as the China Iron and Steel Association (CISA). The licensing system was meant to let the iron and steel industry speak with “one voice” when dealing with major foreign suppliers and exclude unlicensed traders who were blamed for raising prices via speculative buying. But the system proved counterproductive as it created a grey market for middlemen to rent out permits. Scrapping of the system is expected to lower costs for steel mills.