read the very last paragraph of this...

read the very last paragraph of this article.

http://www.bloomberg.com/apps/news?pid=20601089&sid=aYpz1QU_oCZg

China May Scrap Plan for Mills to Match ArcelorMittal (Update3)
Share Business ExchangeTwitterFacebook| Email | Print | A A A By Bloomberg News

Feb. 4 (Bloomberg) -- China, the worlds largest steel producer, may pull back from encouraging steelmakers to get as large as global leader ArcelorMittal, as it directs mills to focus on improving product quality, a government adviser said.

We want them to focus on upgrading technologies, product quality and the environment, said Li Xinchuang, who is helping to draft a new steel policy as head of the China Metallurgical Industry Planning & Research Institute. Big is not necessarily good. ArcelorMittal suffered too much last year.

The rethink underscores Chinas efforts to close obsolete plants and tighten credit to prevent overcapacity from depressing prices and hurting profits at steelmakers including Baosteel Group Corp. ArcelorMittal, formed from the industrys largest takeover in 2006, may post a $389 million loss for 2009 after the recession cut demand, according to analyst estimates.

Getting bigger means steelmakers will face problems in efficiency and high management costs, said Xu Xiangchun, chief analyst with Mysteel Research Institute in Beijing. The crisis made people know that big is not good by itself.

Baoshan Iron & Steel Co., the Shanghai-listed unit of Baosteel, fell 0.5 percent to close at 7.60 yuan, taking this years decline to 21 percent on concern government efforts to tighten credit will slow demand. The Shanghai Composite Index dropped 0.3 percent today, and 8.6 percent for 2010.

Better Performance

Luxembourg-based ArcelorMittal made 103.3 million metric tons of steel in 2008, according to the latest figures from the World Steel Association. Hebei Iron & Steel Group overtook Baosteel as Chinas largest mill last year, with 40.24 million tons of output, according to research company Custeel.com.

The new industry policy may be released soon, China Metallurgicals Li said, without giving a specific timeframe. In a November version of the policy draft, the Chinese government was considering asking steelmakers to merge to create one or two producers with annual capacity of 100 million tons by 2015.

The Chinese government may instead encourage steelmakers to get as big as 50 million tons through domestic consolidation, Li said. During the crisis, the smaller companies performed better than the bigger ones, he said.

ArcelorMittal may have a 2009 loss of $389 million, according to the median estimate of analysts compiled by Bloomberg. Baoshan Steel posted a profit of 5.75 billion yuan ($842 million), helped by Chinas stimulus spending.

Evraz Group SA Chairman Alexander Abramov said yesterday mills may avoid mergers to rival operators such as ArcelorMittal because investors arent willing to pay any premium for the size. Evraz is Russias second-largest steelmaker.

Market Needs

We should try our best to improve our quality to meet market needs, Li, 45, said yesterday in an interview in Beijing. Chinese steel producers need to do better to meet requirements from shipbuilders and automakers, he said.

Steel product imports jumped 14 percent to 17.6 million tons last year, partly as local producers couldnt meet demand for higher-grade material, Li said. Domestic mills should seek to displace 2 million tons of imports this year, he said.

Chinese steelmakers face rising import competition from Japan, the chairman of the steel association said in October.

Benchmark Chinese steel prices last month dropped the most in four months as inventories exceeded 50 million tons, according to Beijing Antaike Information Development Co. Signs of credit tightening by the Chinese government may force steel traders to sell down inventories, depressing prices and hurting steelmakers, Deutsche Bank AG said in a note dated yesterday.

Production Efficiency

Chinese steelmakers need to improve production efficiency, Phoenix TV said Jan. 31, citing Li Rongrong, director of State- owned Assets Supervision and Administration Commission. Large Chinese producers, such as Baosteel, use 89 workers to make 10,000 tons of steel, the director said. Rivals in the U.S. and Japan would use 7, the report said.

Baosteel aims to make 44.8 million tons this year, the official Xinhua News Agency reported Jan. 18. China produced a record 568 million tons last year, almost half of global output.

Steelmakers would be encouraged to pay more attention to environmental issues in the new industry policy, China Metallurgicals Li said.

There would be details on energy savings, carbon and other emission reductions that the government wants to see, he said, without elaborating.

Premier Wen Jiabao on Jan. 27 said Chinas pollution situation is grim and called for strict emission limits on steel producers. China, the biggest producer of greenhouse gases, in November said it will cut output of carbon dioxide gas per unit of gross domestic product by 40 percent to 45 percent by 2020 from 2005 levels.

Another part of the new policy is to continue to encourage steelmakers to secure supplies of iron ore and coking coal, used to make steel, by buying assets overseas, Li said.

i wonder what the news from AXO will be then???