Chinese Steel Over the Internet

By JONATHAN S. LANDRETH

(Virtual China News -- Mar. 14) Beijing announced that it would pour nearly US$6 billion into 42 domestic steel companies to prepare them for the increased foreign competition they will face once China accedes to the World Trade Organization and lowers tariffs on imported steel, according to a report on Monday in the China Daily Business Weekly.

Most of the government subsidies will be low-interest bank loans, and will be used to improve the quality of steel produced in China, where the Internet is also expected to play a role in shaping the industry.

While the government strains to keep major steel producers in China competitive in the global market, smaller companies in China are likely to turn to the Internet in their struggle to remain in the game.

Beijing hopes to transform the sector into "strong competitive conglomerates able to deal with fierce international competition," the report said, and will focus on improving 13 categories of high-demand steel products, including steel plates, or flat steel, used for automobiles and rolled steel used for petroleum pipelines.

Untapped Market

Topping the list of companies that will benefit from the government plan are China's four largest state owned steel companies, including Baoshan, Anshan, Wuhan, and Capital Iron and Steel Group. These four state-owned (SOE) steel firms, which trade steel beyond China's borders through special import-export operations, account for 70 percent of the sector's profits with their combined business.

Small and midsize steel companies that will also be getting government money may soon use the Internet as an outlet for their specialty products -- such as steel wire -- if the likes of the Baoshan and the other three are too tough to compete with using traditional distribution models.

Baoshan, which employs over 150,000 people, will compete with the likes of United States Steel and Bethlehem, in what, according to Joe Pecoraro, vice president of Materialnet.com, is a $1.2 trillion global industry for metals. Pecoraro's company does not yet trade with China because it has concerns about the quality of goods made there, but a midsize Chinese company like Daye Steel, whose products are listed on a Web site called MeetChina.com, may stand a chance when dealing with its small and midsize counterparts outside of China.

"One of the aims of trading steel on the Internet is to continue to open international markets," said Scott Robertson, steel editor of American Metal Markets, a daily newspaper covering the metals and recycling industries. "Many steel manufacturers around the world see China and an untapped market and any moves by Beijing to compete will be viewed as moves to open the market."

Specialty Steel

There are now several Web sites devoted to trading steel and a few that focus on Asia. e-steel.com, iSteelAsia.com, ibuysteel.com, are just a few.

Web-based distribution models could represent an effective means of survival for smaller companies. Flexibility of pricing is one advantage of the Internet that has not been overlooked by MeetChina.com spokesman Josh Cherrin, who says he can get the best price anywhere for 8mm steel wire from China. MeetChina.com is a California-based Web site that offers a platform for commerce between Chinese and foreign businesses.

"The Internet enables small smart companies to specialize in one thing and leverage the liquidity of the marketplace to continue to produce that one thing," said Cherrin from MeetChina's San Francisco office.

Cherrin, who formerly reported on the steel industry when he worked for Dow Jones in China, couldn't say how many of the various items on the MeetChina Web site were steel products, but a search of the site revealed some 40 companies advertising gear steel, ball bearings, and small steel parts. Not the stuff of cars and expressways, but specialized parts that can be made to order.

Production Drop

Beijing hopes to join the WTO this year, after 14 years of negotiations, and such a scenario would mean international competition for all of China's steel-makers, small and large. Accession would remove non-tariff barriers and cut steel tariffs to 8 percent from the present 10 percent by 2005, the China Daily said.

With current levels of over-supply in China's own market, Internet-based commerce would be a welcome platform if it could facilitate sales.

Industry sources signaled that output would be reduced by 10 percent from last year to less than 100 million tons, to help prices recover from years of over-supply.

Last year prices on the mainland steel product market fell by more than RMB150 (US$18) per ton because of supply glut, the report said.

To reach Jonathan S. Landreth: jslandreth@virtualchina.net