A steel tiger

China is prepared to renationalize large portions of its huge steel sector and to consolidate it into six or seven giants. This is in order to get the upper hand in negotiations with iron ore miners BHP and Rio. The Chinese government is very concerned about overcapacity in the sector, which it has been estimated to be as much as the entire Japanese steel industry. China?¢‚Ǩ‚Ñ¢s Ministry of Industry and Information Technology held talks with the China Iron and Steel Association, and the six biggest steelmakers. This meeting was held in order to develop guidelines for the consolidation project. This project aims at radically trimming the sector?¢‚Ǩ‚Ñ¢s approximately 700 steel manufacturing entities. The policy is designed to encourage larger mills to swallow up more of the market, but still allows the smaller ones to exist if they can continue to meet industry standards. The policy seeks to promote concentration within the industry, which is expected to strengthen China?¢‚Ǩ‚Ñ¢s steel trade internationally. China seeks to get the special ?¢‚ǨÀúChina price?¢‚Ǩ‚Ñ¢ for iron ore, arguing that they are the world?¢‚Ǩ‚Ñ¢s biggest consumer of the raw material.

Steel tension

The first round of talks between Australia and China due to ?¢‚ǨÀúbad blood?¢‚Ǩ‚Ñ¢ was brought on by the arrest of four Rio Tinto executives, including Australian Stern Hu. Government relations have since warmed back up, but the issue of iron ore pricing is still deadlocked.

The future of consolidation

The consolidation process is not going to be either easy or short. The process may take from between three to five years. The consolidation shouldn?¢‚Ǩ‚Ñ¢t have an impact on the market as long as the demand remains strong and the large mills continue to expand their productivity level. The consolidation will; however, probably affect the unemployment rates and taxes. Local governments may fight against the consolidations unless their concerns are dealt with.