Ma Guoqiang, general manager of Baosteel, said December 15, 2009 that next year in terms of steel demand and the overall price, the situation will be greatly improved compared to this year, but the overcapacity issue will remain. He also said that the world's major steel enterprises' financial situation is still not optimistic this year, and this means that the iron ore price is unlikely to rise next year.

Next year's domestic production capacity may surpass 600 million tons

Ma expected that thanks to the 4 trillion yuan economic stimulus plan, as well as investment demand in real estate and infrastructure, this year the domestic steel production capacity could reached 5.7 million tons. Judging by the just-concluded Central Economic Work Conference, next year proactive fiscal policy and moderate loose monetary policy will be continued. The national crude steel output in 2010 could reach more than 600 million tons.

He also said next year China's economic growth will rely more on domestic demand and growth in investment will be less than this year. Based on this premise, combined with reduction in vehicle purchasing tax and the possibility of continuing the home appliances to the countryside policy, the outlook for steel demand is optimistic.

Furthermore, as urbanization continues to advance, the demand for steel will be diversified, which will generate a new round of domestic steel demand. Relatively speaking, with the cooling down in investment in infrastructure, construction steel demand growth will slow in 2010.

Ma also said the situation of overcapacity will be more prominent in the next year. In his view, eliminating backward production capacity will need to rely on economic measures, but the key is to strictly enforce environmental regulations, making those iron and steel enterprises with high pollution and high energy consumption lose their cost advantage.

Baosteel won't increase production capacity next year

Ma Guoqiang said at Baosteel there will be no increase in production capacity next year, and they will continue adjusting the product structure in accordance with national requirements.

"Due to the constraints of anti-dumping by foreign countries, while China has large production capacity, the price of seamless steel pipe products in 2010 is not optimistic."

"Baosteel next year will insist on differentiation strategies and produce the relative cost-competitive products that other domestic steel mills can not produce," Ma said.

Ma said the iron ore market is a global market, so it directly relates to global supply and demand. From a global perspective, the financial situation of some iron and steel enterprises in 2009 is very difficult, and a considerable number of enterprises suffered losses or meager profits, insufficient to support the price rise of iron ore next year.

However, according to a report from ratings agency the Fitch Ratings Corporates Group, China's steel output recovery is pushing up the prices of raw materials, and the agency expects prices of raw materials to increase 15 percent -20 percent in 2010 than in 2009. Since the end of 2008, downstream operating costs of the steel company which are self-sufficiency in raw materials may have been reduced. These companies will make profits when capacity utilization rate is more than 75 percent.