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REFRACTORIES REVIEW: What's Happening in China?

June 1, 2004
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In 2003, the gross domestic product (GDP) of China increased by 9.1%. It is not known if this rapid pace of economic growth can continue-some predict it will go on until at least 2010, while others say this may be a "bubble" and that the government will have to put on the brakes to slow and control the growth.

Following the historic meeting on February 21, 1972, of President Richard M. Nixon and Chairman Mao Xe Deng in Beijing, China began increasing its worldwide business activities in the 1980s. Since then, it has become a huge engine for economic growth in the international marketplace.1 In 2003, the gross domestic product (GDP) of China increased by 9.1%.2 It is not known if this rapid pace of economic growth can continue3-some predict it will go on until at least 2010, while others say this may be a "bubble" and that the government will have to put on the brakes to slow and control the growth.4 No matter what happens in the economic future, the changes and developments in China have been phenomenal, and the effects far-reaching.

Cement

China has been the world's leading manufacturer of cement for 17 years, and in 2003 it accounted for 40% of the world's production. The need for cement (as well as steel and other commodities) has been supported in large part by increasing urbanization and real estate development, along with projects related to the 2008 Beijing Olympics and the 2010 Shanghai World Expo.5

Steel

China has been the world's leading steelmaker since 1997, when it surpassed Japan. China's steel production in 2003 (about 220 million metric tons [mmt]) was more than the total steel production of Japan and the U.S. combined. China's steel production in January and February 2004 was about 25% higher than the same months in 2003. And the country's steel production since 2000 has increased 73% (about 120 mmt), which is more than the total U.S. steel production (92 mmt) in 2003. China's steel production is not expected to peak until at least 2010. The country is still in the development stage of industrialization, and it has been observed in other nations that steel consumption typically peaks when urbanization reaches 65% or more-China's urbanization is now about 40%.6

Chinese imports of iron ore have doubled in the last four years,7 and its consumption of iron ore in 2004 is estimated to be 26% more than in 2003.8 China's demand for iron ore and metallurgical coal has significantly affected the world markets, including the availability of ships and an increase in shipping charges. The increased need to move materials around the world caught the shipping industry off guard and revealed the need for more capacity. A surge in shipbuilding can be expected, which will contribute to the need for more steel.9

In 2003, China became the first country to ever import more than $1 billion of metal scrap from America. Consequently, the price of steel scrap has risen to more than $300/ton, compared with $156/ton at the end of 2003 and $77/ton at the beginning of 2001.10 China's auto production first exceeded 1 million units in 2002, and in 2003 its auto production increased 81%, reaching 2.07 million units.11

Refractories

Because the steel industry is the major user of refractories (60-70% of the annual market), and given China's surge in steel production, refractory production in China has increased 51% since 2000. In 2003, it was 14.4 mmt, which is more than four times the U.S. refractory tonnage of roughly 3 mmt. The average refractory consumption rate by the Chinese steel industry is about 20 kg/ton of steel produced, which is more than twice the U.S. refractory consumption rate. As the increase in steel production continues in China, it can be expected that the country's refractory production will continue to increase, exceeding 15 mmt for 2004.

Raw Materials

Commodity prices, which fell through the 1990s, have turned upward this year, due in large part to the surge in demand from China. China is the world's largest consumer of zircon, at 21% of the worldwide total, estimated to be 1.13 mmt in 2003.12 China is also the largest importer of alumina. Related to the demand in China, nickel and copper are selling at 141_2 and eight year high prices, respectively.

The major effect of China on the raw materials and commodities world was at least generally indicated by the high spirits and positive comments at the recent 17th Industrial Minerals conference in Barcelona, Spain (March 28-31, 2004), which attracted 580 attendees (its largest attendance since 1996).

The data support the idea that if the 20th century is considered to be the century of the U.S., then the 21st century will be the century of China and Asia.13 With the "China factor" and numerous other issues, challenges will continue for the U.S. refractories industry. Of the various factors, the most challenging issue could well be imports from China.14

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