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China Gerui Comments on China's Steel Industry Restructuring Policy
01/27/2014 - China Gerui Advanced Materials Group Limited, a high precision, cold-rolled steel producer in China, recently commented on the Chinese Government's recent accelerated initiatives to restructure its steel industry.
"The planned restructuring of the steel industry places China Gerui in a beneficial position by regaining a much needed supply-demand equilibrium in the sector which would stabilize pricing over the long-run," said Mr. Mingwang Lu, chairman and CEO of China Gerui. "We believe that as a high-end, niche cold-rolled specialty steel producer, we will have the opportunity to enter new markets with improved raw material availability and cost structure which will ultimately result in improved gross margins over time."
China's 12th Five-Year Plan is emphasizing merger and acquisition activity in the steel industry to create larger, more efficient steel companies with a greater emphasis on high-end steel products. China's steel industry is the world's largest, but its estimated oversupply of approximately 100 to 200 million tons and fragmented structure has resulted in its inability to win pricing concessions from large international iron ore producers. Following the third Plenary Session of the 18th CPC Central Committee held in November 2013, China has accelerated its initiatives in restructuring the steel industry with the objective to reduce overall steel production capacity by 80 million tons before 2018. The government's determination has been evidenced by the recently announced capacity reduction in Hebei Province whose total output accounts for approximately twenty-five percent of the national output.
The Government's new policy is to merge smaller producers or to shut them down completely, which will also have the effect of strengthening the bargaining position of Chinese steel companies with the industry's large international iron ore raw material suppliers. It can be expected that as the steel supply-demand ratio moves into equilibrium, steel prices will recover from historical lows and combined with lower negotiated material costs, higher profitability and margins should result for remaining Chinese steel producers.
Further, according to China's Ministry of Information and Information Technology, approximately 400 million tons of steel producing capacity in China out of a total production capacity of 970 million never received full approval from the national Development and Reform Commission or fulfilled other legal requirements such as permission to access loans among other necessary requirements. It is likely that while some of this illegal capacity will be allowed to become legal, other operations will be terminated.
The planned consolidation of the steel industry is focused on the upper stream of the value chain, which will beneficially impact raw material suppliers to companies like China Gerui. The resulting higher raw material costs should eliminate low efficiency, poorly capitalized cold-rolled steel producers which would provide an opportunity for China Gerui to capture additional market share. With its high-technology, high-end cold- rolled steel products, the Company looks to be a beneficiary of the planned changes and is well-positioned to penetrate new markets to generate substantial future growth.
Mr. Mingwang Lu, chairman and CEO of China Gerui, commented, "We are in the enviable position of being a premier high-end specialty steel producer where our business objectives are completely aligned with the Government's restructuring plans. Once the Chinese steel industry begins to regain its supply-demand balance, our broad portfolio of high-value, specialty steel niche products will enable us to focus on high-growth steel markets, increase the utilization of our capacity and generate greater profitability. We are confident that a rational operating environment will allow us to more fully realize our revenue growth and earnings capabilities enabled by the successful execution of our strategic growth plan."
China Gerui Advanced Materials Group Limited is a leading niche and high value-added steel processing company in China. The company produces high-end, high-precision, ultra-thin, high-strength, cold-rolled steel products that are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. China Gerui's products are not standardized commodity products. Instead, they are tailored to customers' requirements and subsequently incorporated into products manufactured for various applications. The company primarily sells its products to domestic Chinese customers with an emerging presence with international customers in a diverse range of industries, including the food and industrial packaging, construction and household decorations materials, electrical appliances, and telecommunications wires and cables.
China's 12th Five-Year Plan is emphasizing merger and acquisition activity in the steel industry to create larger, more efficient steel companies with a greater emphasis on high-end steel products. China's steel industry is the world's largest, but its estimated oversupply of approximately 100 to 200 million tons and fragmented structure has resulted in its inability to win pricing concessions from large international iron ore producers. Following the third Plenary Session of the 18th CPC Central Committee held in November 2013, China has accelerated its initiatives in restructuring the steel industry with the objective to reduce overall steel production capacity by 80 million tons before 2018. The government's determination has been evidenced by the recently announced capacity reduction in Hebei Province whose total output accounts for approximately twenty-five percent of the national output.
The Government's new policy is to merge smaller producers or to shut them down completely, which will also have the effect of strengthening the bargaining position of Chinese steel companies with the industry's large international iron ore raw material suppliers. It can be expected that as the steel supply-demand ratio moves into equilibrium, steel prices will recover from historical lows and combined with lower negotiated material costs, higher profitability and margins should result for remaining Chinese steel producers.
Further, according to China's Ministry of Information and Information Technology, approximately 400 million tons of steel producing capacity in China out of a total production capacity of 970 million never received full approval from the national Development and Reform Commission or fulfilled other legal requirements such as permission to access loans among other necessary requirements. It is likely that while some of this illegal capacity will be allowed to become legal, other operations will be terminated.
The planned consolidation of the steel industry is focused on the upper stream of the value chain, which will beneficially impact raw material suppliers to companies like China Gerui. The resulting higher raw material costs should eliminate low efficiency, poorly capitalized cold-rolled steel producers which would provide an opportunity for China Gerui to capture additional market share. With its high-technology, high-end cold- rolled steel products, the Company looks to be a beneficiary of the planned changes and is well-positioned to penetrate new markets to generate substantial future growth.
Mr. Mingwang Lu, chairman and CEO of China Gerui, commented, "We are in the enviable position of being a premier high-end specialty steel producer where our business objectives are completely aligned with the Government's restructuring plans. Once the Chinese steel industry begins to regain its supply-demand balance, our broad portfolio of high-value, specialty steel niche products will enable us to focus on high-growth steel markets, increase the utilization of our capacity and generate greater profitability. We are confident that a rational operating environment will allow us to more fully realize our revenue growth and earnings capabilities enabled by the successful execution of our strategic growth plan."
China Gerui Advanced Materials Group Limited is a leading niche and high value-added steel processing company in China. The company produces high-end, high-precision, ultra-thin, high-strength, cold-rolled steel products that are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. China Gerui's products are not standardized commodity products. Instead, they are tailored to customers' requirements and subsequently incorporated into products manufactured for various applications. The company primarily sells its products to domestic Chinese customers with an emerging presence with international customers in a diverse range of industries, including the food and industrial packaging, construction and household decorations materials, electrical appliances, and telecommunications wires and cables.
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