There Might Be a Big Damper for The Country's Steel Industry

China Daily reported that if the lottery system allowing people to purchase automobiles in first-tier cities was expanded to all major cities across the country, it would be a big damper for the country's steel industry.

China's steel industry has been suffering from overcapacity and declining demand this year, while major producers have increasingly focused on the automobile market, which can bring higher profits.

Mr Zhang Tieshan an analyst from steel information provider Mysteel.com said that however, with an economic slowdown and the lottery policy, steel products for automobiles have been declining this year.

He said that "The sales of heavy machinery vehicles have declined more dramatically than the sales of cars because of macroeconomic conditions.”

Steel is the key material for automobile manufacturing. It takes up about 85% of all materials for a heavy-duty vehicle and about 64% for a family car. Therefore, the sales of such steel products are closely related to the automobile market.

Chinese automobile output clocked 40 to 50% annual growth in 2009, a boom for both the auto market and related steel producers.

Mr Zhang said that "However, the opportunity has gone and a similar situation will never happen again since China started to control automobile purchases two years ago.”

For the first 11 months, China's automobile sales were about 17.5 million units, up only 4% year on year, according to the China Association of Automobile Manufacturers.

He said companies producing steel products for exports are influenced less by domestic factors.

Despite the declining trend this year, analysts said the market for automobile-use steel products still brings higher profits compared with the crude steel refining business, attracting many Chinese producers to join the competition.

Mr Hu Yanping a steel analyst with Umetal.com said that "It's proof of the advanced manufacturing technology by producing high end steel products for automobile use. Plus Baoshan Iron & Steel Co, the country's largest public steel maker, has had a great performance in the sector, which motivates many other major players to copy its strategy."