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Steel body urges more aid to restore demand

THERE is a need for more government measures to revive China's steel demand because there is so far no clear sign of a major recovery, a China Iron and Steel Association official said yesterday.

The volume of steel production this year would depend on the performance of the domestic economy in the second half as exports are likely to be weak, Luo Bingsheng, the association's vice chairman, told a media briefing.

China is spending 4 trillion yuan (US$586 billion) to stimulate its economy amid a global slump, and last month approved rescue packages for the steel industry. It also pledged to encourage mergers and acquisitions and control total capacity strictly.

"Some may believe that demand is reviving (as prices recovered in January), but I don't think so," said Luo, adding that he expects extra state spending measures to be launched to help stimulate demand.

He expects crude steel output at 490 million to 500 million tons this year.

Last year China's crude steel output edged up 1.13 percent to 500.5 million tons. The growth rate was 14.5 percentage points lower than a year ago. The steel production capacity totaled 660 million tons by the end of last year, of which some 160 million tons of capacity were left idle.

The association said that the aggregate net profit of 71 medium and large-size steel producers fell 43 percent last year as weak demand drove down prices. Net profit was 84.6 billion yuan (US$12.4 billion), while sales climbed 24.7 percent year on year to 2.57 trillion yuan.

The 71 producers earned 101 billion yuan of net profit in the first half of 2008, but they lost 16.4 billion yuan in the second half as costs rose while selling prices declined. The association also said that 15 steel producers had full-year losses totaling 8.5 billion yuan.

Only about 30 percent of China's steel makers, mainly small-scale and private-sector firms, managed to avoid losses in October and November, according to the association. In December, the domestic steel industry reported an aggregate loss of 29.1 billion yuan, it said.

Still, hopes to revive demand could complicate China's efforts to secure the lowest annual iron ore contract prices with the world's top miners, including Brazil's Vale and Australia's BHP Billiton and Rio Tinto.

On Friday, Vale reportedly said that it wants to cede its price-setter role to BHP and Rio for new annual iron ore contract price talks that start on April 1. Last year, Vale agreed to price rises of 65 percent to 71 percent for its ore with China, but the Australian miners got an 85-percent rise.


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