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China is one of the countries where demand for steel is increasing the most strongly. Since 1991, China's real GDP has maintained a steady growth rate of over 7% annually. Despite a temporary setback due to the outbreak of SARS in 2003, the country achieved a real GDP growth rate of 9.1% that year, its fastest rate since 1997. Per capita GDP in China now surpasses US$1,000. Demand for steel has also been expanding with the growth of the economy. These days, the apparent consumption of crude steel per capita is comparable to Japan in the 1960s or South Korea in the 1980s. Just as steel demand in Japan and South Korea rose strongly ahead of the Olympics when they were held in those countries, the consumption of steel in China is expected to keep growing ahead of the 2008 Beijing Olympics and the World Exposition Shanghai 2010.

  Million tons
                    Forecast Forecast
(CY) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Europe 158.7 147.5 164.5 173.6 170.5 181.4 176.5 176.5 182.1 187 191
NAFTA 116.9 124.4 134.5 144.1 139.9 146.6 129.8 132.8 130.6 139 141
Asia/Oceania 296.8 303.4 313.9 282.6 308.5 328.2 353.6 399.4 453.4 488 518
 Of which, China 87.4 97.3 103.2 110.6 122.6 124.6 153.4 185.6 232.4 263 290
Other 78.9 77.8 85.1 81.1 79.7 91.4 94.7 96.1 97.6 103 108
World total 651.3 653.1 698.0 681.4 698.6 747.6 754.6 804.8 863.7 917 958
Source: International Iron and Steel Institute

 Apparent Per-Capita Crude Steel Consumption

Apparent Per-Capita Crude Steel Consumption

At the same time, however, the construction boom has led to some concerns about a possible overheating of the Chinese economy. The Chinese government, in pursuit of sustainable growth, showed no hesitation in tightening its money policy in early 2004. From that time until now, the authorities have (1) raised the official discount rate (March 25, from 3.24% to 3.87%), (2) increased the cash reserves ratio (April 25, from 7.0% to 7.5%) and (3) issued a State Council directive to limit investment (April 27). The State Council directive raised the minimum required of equity ratios for implementing investment projects: for steel the minimum was raised to 40% from 25%, and for aluminum and others to 35% from 20%. The aim of this move was to avert market disorder among steel and non-ferrous metals companies with weak capital bases that emerged from the construction boom, and to ensure the continued healthy development of the supply system.

Construction investment-related businesses expanded rapidly in 2003, but due to the series of tight money policy measures, the markets for construction materials such as steel bars and wire rods have already fallen into a temporary slump.
  The bulk (about 80%) of JFE Steel's exports to China are, however, not commodity-type items that are vulnerable to fluctuations in market supply and demand; rather, they are high-quality steel sheets for use in automobiles, home appliances and cans and plates for ships. The number of suppliers is limited in these areas, and we believe the supply/demand situation will remain tight in the future.
  In the area of construction materials, the downturn in the market has had little impact on JFE Steel's exports to China, which account for 8% of its total exports. JFE Steel's exports of construction materials represented only 8% of its total exports to China in the year ended March 2004. In addition, the construction materials we export are for the most part special, ultra thin, high-quality materials that cannot be supplied by domestic manufacturers in China (ultra thin cold rolled coil for galvanized steel sheets). Such materials are available from only a limited number of suppliers, and have not undergone the same kind of slump as ordinary construction materials.

 JFE Steel's Position in Steel Consumption in China
—Only 1% of total steel consumption in China accounts for products imported from JFE.

  Supply and Demand for Steel in China (2003)
      Million tons/year
  Apparent steel consumption
(of which more than 50%
of total are for construction)
  –Domestic production   236  
  –Export   7  
  –Import   37  
    From Japan
    From JFE   2  
  *Apparent consumption
= domestically produced + imported – exported
Source: China Iron & Steel Association


Overall steel consumption in China has been growing rapidly, as shown in the statistics of total apparent steel consumption in China, which has been growing 20-30% annually for the three consecutive years since 2001. Construction materials are estimated to account for over 50% of total steel demand, and it is, therefore, fair to believe that the major portion of this rapid growth is attributable to construction applications. This situation becomes even clearer if one looks at the activity level in various industry sectors. Compared with the rate of growth in construction investment, industrial production has shown relatively steady growth.
Consequently, aside from a slump in both supply and demand for construction materials resulting from the tight money policy, we believe, on the whole, the demand will remain healthy.
In truth, this situation is revealed in the changes in the market, as broken down by type of steel. Prices for steel bars and wire rods have been falling, but prices for sheets, by contrast, have remained at relatively robust levels. JFE Steel's main customers in the automotive, home appliance and shipbuilding industries have enjoyed continued stable growth for the past several years, their inventories have consistently remained at low levels, and raw materials are in a chronic state of short supply. The recent money tightening has not yet caused any change in these circumstances.

In response to expanding demand for automotive steel sheets in China, JFE Steel recently formed a joint venture Guangzhou JFE Steel Sheet Company Ltd. with Guangzhou Iron & Steel Enterprises Holdings Ltd. JFE Steel holds a 51% interest in Guangzhou JFE Steel Sheet, where construction has already begun with the aim of starting operations in April 2006. Guangzhou JFE Steel Sheet will have an annual capacity of 400,000 tons of hot-dip galvanized steel sheets (GA, GI). The cold rolled coils used as materials for these sheets must be of a high quality, and JFE Steel will be the main source of supply.

 Growth in Apparent Consumption in China's Steel Market
in Apparent Consumption in China's Steel Market

 Level of Activity in China's Major Industries
of Activity in China's Major Industries

 Trends in China's Steel Industry
Trends in China's Steel Industry

 Projected Demand for Continuous Galvanized Steel Sheets for Use in China's Automotive Industry
Projected Demand for Continuous Galvanized Steel Sheets for Use in China's Automotive Industry