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Shandong's Iron and Steel Industry: Development and Restructuring during the 12th Five-Year Plan Period


Liang Yangchun & Xiao Qingwen

By Liang Yangchun, Research Department of Industrial Economy of DRC & Xiao Qingwen, Enterprise Research Institute of DRC

Research Report No 45, 2011

I. Development Trend of China's Iron and Steel Industry and Necessity for Restructuring of Iron and Steel Industry in Shandong Province

China's iron and steel industry has scored rapid progress in the past 10 years. Its crude steel output, which stood at only 128 million tons in 2000, began to grow at an annual rate of more than 20% in 2002. Its growth rate peaked at 30.4% in 2005 and then gradually slid down. Due to the impact of the global financial tsunami, its crude steel output growth was only 1.13% in 2008, but rose to 13.5% in 2009. In 2010, its crude steel output reached 626 million tons, a 10.2% increase year on year.

China is still in the stage of industrialization. In the next five years, its urbanization process will gain further momentum and its consumption upgrading will be in a crucial period. As a result, steel demand will remain high. International experience indicates that China's per capita steel consumption is far below the levels of the United States, Japan, South Korea and other countries in the late stage of their industrialization. It is expected that China's steel industry as a whole will continue to grow, but at a slower pace. The crude steel output annual growth during the 12th Five-Year Plan period will slide to 5%~10%. At an average annual growth rate of 5%, the crude steel output will reach 800 million tons in 2015. But if China's real GDP growth continues to be fast in this period, its crude steel output is likely to rise at an annual rate of more than 5%.

The steel industry is an epitome of China's heavy industry industry, which has overemphasized scale expansion in recent years, and now it is time for its restructuring. Shandong is a major steel producer in China. In 2000, its crude steel output was only 6.35 million tons. But in 2009, its output was respectively 52.73 million tons for iron, 49.50 million tons for crude steel and 58.54 million tons for steel products. They respectively ranked second, third and third in national standings. During the 12th Five-year Plan period, how Shandong's steel industry will restructure itself and pursue a healthy development will have a major demonstration impact on the steel industry across the country.

Like the steel industry in other parts of the country, iron and steel industry in Shandong Province also faces some problems. One, it still has some outdated equipment to eliminate. Statistical data about 22 main steel enterprises in the province indicate that about 16% of the existing capacities of blast furnaces and converters have to be eliminated. Two, the production capacities are not rationally distributed. At present, only about 20% of production capacities are located in coastal areas, with most of the rest in urban areas. Three, technological advance is slow and independent innovation capacity is weak. Four, no major breakthrough has been made in energy conservation and emission reduction. At a time when the steel industry across the country is witnessing upgrading and transformation, it is imperative for the steel industry in Shandong Province to carry out restructuring. First, Shandong's steel industry must change the mode of development. Its development should be driven by technological innovation rather than factor input, and by green steel making rather than black steel making. Second, Shandong's steel industry must adjust its regional distribution, and move production capacities gradually to coastal areas and deep-water ports. And third, Shandong's steel industry must adjust its product structure so that the general and best-selling products and the high-end products can complement each other. Only restructuring can enhance the competitiveness of Shandong's steel industry.

II. Main Contents of Development and Restructuring of Shandong's Iron and Steel Industry during 12th Five-Year Plan Period

1. Existing approaches to the development of Shandong's iron and steel industry

As Shandong's steel industry was noted for a monotonous product structure and an irrational ratio between plates and pipes, the relevant institutions in Shandong designed a preliminary plan in 2004 to turn the province into a producer of high-end steel products. It planned to build several plate production lines.

In 2007, the Shandong Provincial People's Government promulgated the Guidelines for the Further Acceleration of the Restructuring of the Steel Industry. The goal for regional distribution adjustment is that the production capacities of the steel enterprises in coastal areas will rise from 18% in 2006 to more than 50% in five years. In particular, building a large high-end steel base in Rizhao was the priority of regional distribution adjustment. The planned scale was 20 million tons.

In 2009, the Shandong Provincial People's Government issued the Plan for the Adjustment and Rejuvenation of Shandong's Steel Industry (2009~2011). According to the plan, the province's crude steel output will be controlled at about 50 million tons by 2011, the enterprises will be reorganized, the outdated production capacities will be eliminated, and the Shandong Iron and Steel Company will develop into an ultra-large steel corporation in China. In the meantime, industrial distribution will focus on coastal areas, and the construction of the Rizhao high-end steel base will be sped up. In 2010 when Shandong Province began to study its 12th Five-Year Plan, it noted the restructuring and upgrading of the steel industry would be sped up.

Currently, Shandong Province is actively striving to become a pilot province for the experiment of the restructuring of the steel industry. The pilot program has the following main goals. One, it is designed to eliminate outdated production capacities while controlling the total amount of production capacities. The province plans to eliminate 22-million-ton production capacities before 2015. By then, the province's steel production capacity will be controlled at the level of 50 million tons. Two, it is designed to optimize regional distribution and elevate product grades. It plans to build a high-end steel base in Rizhao. When the base is completed, coastal areas will account for more than 40% of the province's production capacities and more than 30% of the province's high-end steel products. Three, it is designed to promote merger and acquisition and expand Shandong Iron and Steel Company. By then, the group's production capacity will reach 38 million tons. In pushing forward this pilot program, the following main tasks must be fulfilled. One, the production capacities of Jinan Iron and Steel Company and Laiwu Iron and Steel Company must be suppressed, respectively from the current 10 million tons to 5.6 million tons and 6 million tons. Two, Shandong Iron and Steel Group Company will be allowed to reorganize Rizhao Iron and Steel Group Company. The latter has been defined as an illegal project and most of its current 13-million-ton production capacity will be eliminated. Instead, Shandong Iron and Steel Group Company will build a 20-million-ton high-end steel base to mainly produce thin plates. Three, Qingdao Iron and Steel Company must be relocated from the northern part of Qingdao to the port area for environmental protection. Four, Jinan Iron and Steel Company and Laiwu Iron and Steel Company will gradually relocate their remaining production capacities to coastal areas.

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