国际铁矿石价格上升，引发了中国各个方面的产业之痛，因此，许多公司不得不在寻找改进他们生产效率的各种方法，以承救他们自己。
Iron Ore Pains for Chinese Industries
International iron ore price rise has triggered pains in various industries in China, and many companies have to look for ways to improve their production efficiency to rescue themselves.
Steel price follow suit
As international iron ore price will increase at least 65% in 2008, iron ore imports into China have now increased by RMB 236/ton (RMB:USD = 7:1) on average from 2007 level. Adding in shipping cost increase, raw materials for steelmaking have now increased by RMB 400/ton, equivalent to a total increase of 15%
Jigang Group, a large state-owned steel company located in the eastern coastal city of Jinan, imports more than 60% of its iron ore from Brazil and Australia. "In less than three months‘ time, domestic steel price has been adjusted upward for three times, totalling RMB 1000, or a 20% increase," said Mr Bo Tao, Production Director of Jigang, "In fact, the magnitude of steel price increase has far exceeded the magnitude of raw materials price increase."
"In March, China‘s average steel product price has increased to RMB 5570/ton, up 40% from previous comparable period, and the rise is expected to continue. To some extent, steel price increase is an enlarged effect of iron ore price increase," said an anonymous person from Jigang, "The strong market demand for steel in China has given steelmakers enough bargaining power on price setting."
Downstream industries suffered
"We have little bargaining power in front of steel companies," said Mr Gao Zengdong, a senior manager from Sinotruk, a major heavy duty truck manufacturer in China, "Due to production requirements, we have to purchase a lot of medium and heavy plates. To ensure raw materials supply, it is impossible to bargain on the price." It is understood that Sinotruk buys more than 20,000 tons of medium and heavy plates from Jigang directly.
"The price for medium and heavy plate was RMB 4800/ton one year ago, but it becomes RMB 6300," said Mr Gao. Although Sinotruk has long term supply contracts with Jigang, but the price is not fixed. Since January this year, steel companies have been increasing their prices every two weeks, with RMB 200-300/ton per increase. "Not all steel plates can meet our requirements, and due to transportation costs, we have to accept products from the nearby Jigang."
Mr Gao also used another example of pig iron, a major input for axles. Pig iron price has increased from RMB 2600/ton in 2006 to the current RMB 5000. Especially since this year, pig iron price is almost increasing everyday. To cope with the high cost of casting, casting parts companies have to absorb 60% of the cost increase, while passing the remaining 40% to customers.
"Casting parts companies are facing tremendous pressure," said Mr Zhang Libo, Secretary-general of China Foundry Association. On one hand, casting parts companies have to bear the pass-on raw materials costs from steel companies. On the other hand, the fully competitive market has forced many of them to absorb the pressure by squeezing their own profit margins. As a result, many small casting parts companies have to close down.
As in another downstream industry, Mr Liu Wei, a supply manager from Jinan Diesel Engine (JDEC), is also feeling the pain. Since February, JDEC‘s steel raw materials, such as structural steel, steel plates and general carbon steel, have all become 30% or more expensive. JDEC spent RMB 600 million on raw materials procurement last year, with RMB 450 million for steel materials. The ever-tightening profit margin has affected the healthy development of JDEC, said Mr Liu.
The shipbuilding industry is also a big user of steel in China, and ship plate price has increased by more than RMB 1000 in recent months. "Shipbuilders in China now have delivery orders that are as far as in 2012, and every million ton of ship capacity consumes 40 tons of steel products. So it is impossible for their steel demand to decrease. In fact, some less-capitalised shipbuilding companies are now closing down as they can‘t afford the productions costs anymore," said Mr Bo from Jigang.
Internal solutions
After several rounds of price increases, Chinese steel companies have mostly recouped their iron ore costs. But their downstream customers, most of which are in highly competitive or consumer markets, are difficult to pass on their higher costs. After half-a-year long campaign, China‘s white goods companies have now raised their product prices to combat the higher steel price. And auto makers, whose steel cost accounts for 70% of cost base, are also publicly speaking out of their pain.
"Our heavy duty truck industry is extremely competitive, so it is hard to pass down the cost pressure," said Mr Gao from Sinotruk. Steel products account for 90% of the raw materials used in trucking production. But as many state-owned truck producers are now expanding their capacity to fight for the domestic and international markets, they can‘t directly pass down their costs to customers. They can, however, rely on technological innovations, energy efficiency and emission control, in order to contain the production costs as much as possible.
The same cost problem is also faced by the competitive home electronics industry in China.
Mr Wang Zhenggang, Vice-CEO of Haier Group, admitted that "for a competitive downstream industry such as us, we can only digest the high costs by technological innovations, product differentiations, high quality and high value-added products. For example, we have recently launched a premium home electronics set with energy efficient and environmentally friendly features."
Mr Wang also said that as a result of the rising steel price, many companies are now actively developing new substitute materials, "In addition, we also utilise the global procurement model, which sources raw materials and accessories from the lowest price countries."
Produced by China Business Intelligence; Source: www.ce.cn
Iron Ore Pains for Chinese Industries
International iron ore price rise has triggered pains in various industries in China, and many companies have to look for ways to improve their production efficiency to rescue themselves.
Steel price follow suit
As international iron ore price will increase at least 65% in 2008, iron ore imports into China have now increased by RMB 236/ton (RMB:USD = 7:1) on average from 2007 level. Adding in shipping cost increase, raw materials for steelmaking have now increased by RMB 400/ton, equivalent to a total increase of 15%
Jigang Group, a large state-owned steel company located in the eastern coastal city of Jinan, imports more than 60% of its iron ore from Brazil and Australia. "In less than three months‘ time, domestic steel price has been adjusted upward for three times, totalling RMB 1000, or a 20% increase," said Mr Bo Tao, Production Director of Jigang, "In fact, the magnitude of steel price increase has far exceeded the magnitude of raw materials price increase."
"In March, China‘s average steel product price has increased to RMB 5570/ton, up 40% from previous comparable period, and the rise is expected to continue. To some extent, steel price increase is an enlarged effect of iron ore price increase," said an anonymous person from Jigang, "The strong market demand for steel in China has given steelmakers enough bargaining power on price setting."
Downstream industries suffered
"We have little bargaining power in front of steel companies," said Mr Gao Zengdong, a senior manager from Sinotruk, a major heavy duty truck manufacturer in China, "Due to production requirements, we have to purchase a lot of medium and heavy plates. To ensure raw materials supply, it is impossible to bargain on the price." It is understood that Sinotruk buys more than 20,000 tons of medium and heavy plates from Jigang directly.
"The price for medium and heavy plate was RMB 4800/ton one year ago, but it becomes RMB 6300," said Mr Gao. Although Sinotruk has long term supply contracts with Jigang, but the price is not fixed. Since January this year, steel companies have been increasing their prices every two weeks, with RMB 200-300/ton per increase. "Not all steel plates can meet our requirements, and due to transportation costs, we have to accept products from the nearby Jigang."
Mr Gao also used another example of pig iron, a major input for axles. Pig iron price has increased from RMB 2600/ton in 2006 to the current RMB 5000. Especially since this year, pig iron price is almost increasing everyday. To cope with the high cost of casting, casting parts companies have to absorb 60% of the cost increase, while passing the remaining 40% to customers.
"Casting parts companies are facing tremendous pressure," said Mr Zhang Libo, Secretary-general of China Foundry Association. On one hand, casting parts companies have to bear the pass-on raw materials costs from steel companies. On the other hand, the fully competitive market has forced many of them to absorb the pressure by squeezing their own profit margins. As a result, many small casting parts companies have to close down.
As in another downstream industry, Mr Liu Wei, a supply manager from Jinan Diesel Engine (JDEC), is also feeling the pain. Since February, JDEC‘s steel raw materials, such as structural steel, steel plates and general carbon steel, have all become 30% or more expensive. JDEC spent RMB 600 million on raw materials procurement last year, with RMB 450 million for steel materials. The ever-tightening profit margin has affected the healthy development of JDEC, said Mr Liu.
The shipbuilding industry is also a big user of steel in China, and ship plate price has increased by more than RMB 1000 in recent months. "Shipbuilders in China now have delivery orders that are as far as in 2012, and every million ton of ship capacity consumes 40 tons of steel products. So it is impossible for their steel demand to decrease. In fact, some less-capitalised shipbuilding companies are now closing down as they can‘t afford the productions costs anymore," said Mr Bo from Jigang.
Internal solutions
After several rounds of price increases, Chinese steel companies have mostly recouped their iron ore costs. But their downstream customers, most of which are in highly competitive or consumer markets, are difficult to pass on their higher costs. After half-a-year long campaign, China‘s white goods companies have now raised their product prices to combat the higher steel price. And auto makers, whose steel cost accounts for 70% of cost base, are also publicly speaking out of their pain.
"Our heavy duty truck industry is extremely competitive, so it is hard to pass down the cost pressure," said Mr Gao from Sinotruk. Steel products account for 90% of the raw materials used in trucking production. But as many state-owned truck producers are now expanding their capacity to fight for the domestic and international markets, they can‘t directly pass down their costs to customers. They can, however, rely on technological innovations, energy efficiency and emission control, in order to contain the production costs as much as possible.
The same cost problem is also faced by the competitive home electronics industry in China.
Mr Wang Zhenggang, Vice-CEO of Haier Group, admitted that "for a competitive downstream industry such as us, we can only digest the high costs by technological innovations, product differentiations, high quality and high value-added products. For example, we have recently launched a premium home electronics set with energy efficient and environmentally friendly features."
Mr Wang also said that as a result of the rising steel price, many companies are now actively developing new substitute materials, "In addition, we also utilise the global procurement model, which sources raw materials and accessories from the lowest price countries."
Produced by China Business Intelligence; Source: www.ce.cn