Jaway Stainless Steel

Power price hike may push up steel costs in China - Jaway Report

It is reported that National Development & Reform Commission may lift the power prices by an average of 1.67 fen per KW/H in 15 provinces since June 2011. Statistics show that the power consumption of China major large and medium sized steelmakers totaled 442.74 KW/H. Experts noted that since the price hike may push up the average steel cost by CNY 7.39 per tonne, it may hit a great blow on the high energy consuming industries like iron and steel industry.

However large sized companies boast a higher amount of self generating power, which makes them less impacted than those medium and small sized companies.

Opinions are divided on the actual impacts of the power price hike. Hebei Iron and Steel Group said that it has offset the increased steel cost along with the price hike with the increasing ratio of self generating power amount. But not all the steelmakers could make it like Xinxin Ductile Iron Pipes Co Limited, for instance, who owns no enough self generating power. A director of Strategy Planning Department of Xinxin noted that only 20% to 30% national steelmakers could generate power themselves to meet the demand. The power price hike presents its effect on the steel cost rise while the insufficient power supply may restrict mills’ productions.

An insider of a steelmaker said that the power price hike may give impetus to the production cost increase and then cut the steelmakers’ revenues in a short run, but it has not shown itself now.

However, it is reported that the rolling process consumes the largest amount of power in the whole steel making procedure, accounting for 26% of the total, which is a vital factor to be considered for the production costs. When it comes to the downstream rolling steel process, the power consumption may become higher.

Mr Luo Bingsheng deputy party secretary of China Iron and Steel Association noted on the 8th session of Shanghai Derivatives Market Forum held recently that the power consumption of iron and steel industry occupied 11.5% and 15% of the total national and the industry power consumption respectively. Therefore, it is unavoidable to take power rationing measures on iron and steel companies due to their overcapacities and high increase of power consumption.

The impacts of price hike on the iron and steel industry may demonstrate itself in the next 2 to 3 months. Mr Luo explained that the power shortage would appear when it entered summer consumption peak from June to October 2011 period. The power rationing measures to control the production could ease the oversupply in the domestic market.

Statistics show that there are about 0.1 billion to 0.2 billion tonnes outdated capacities in iron and steel industry, which refers to furnaces with volumes no more than 300 cubic meters as well as converters and electric furnaces less than 20 cubic meters nominal volumes, with their power consumption per unit higher than the standards stipulated by national policies. Analysts pointed out that the discriminated power price hike and punitive prices would weaken the competitiveness of steelmakers with the outdated equipments in order to accelerate the elimination process. A great blow on steelmakers with high energy consumption and high ratio of low value added products could also benefit the restructuring of iron and steel industry.

(Sourced from MySteel.net)